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Leveraging the Power of Teamwork
At CME we believe that powerful ideas can and do change the world. In this issue of CME Magazine, we examine how the idea of effective teamwork is transforming not only our financial marketplace, but also one of our hometown sports franchises. Our cover story is devoted to a man whose innovative ideas and instinct for leadership generated a remarkable turnaround of a major-league baseball team in a very short period of time. In his second year as manager of the Chicago White Sox, Ozzie Guillen led the team to its first World Series title since 1917. Guillen’s success demonstrates that strong personal leadership in developing a winning strategy and effectively motivating a high-powered team of individuals to deliver on it can have impressive results. CME also is focused on developing powerful new teams. Recently, we announced three new initiatives that involve teaming up with others. We think they will open enormous opportunities for a wide range of customers and attract new participants to our markets around the world. These initiatives, which are featured in this issue of the magazine, include: • A partnership with NYMEX that makes NYMEX energy products available throughout the world on our CME Globex electronic trading platform. • The launch of a 50-50 joint venture with Reuters to create a unique new company, FXMarketSpace, which will offer customers the world’s first centrally-cleared global foreign exchange (FX) marketplace for spot FX trading. • The creation of an entirely new class of derivatives – CME housing futures – to provide a barometer for housing values and a range of trading opportunities based on residential homes, the second largest asset class in this country. An interview with Robert Shiller, developer of the Case-Shiller Home Price Indices on which our products are based, is included. Readers also can learn about the significant enhancements we have made for trading electronic options on our CME Eurodollar products – including covered options – and how even highly complex options trades can now be done simply and easily on screen. We also take a closer look at India, whose market potential for derivatives has tremendous importance for the world.
Terrence A. Duffy
Chairman of the Board, CME
Craig S. Donohue
Chief Executive Officer, CME
We continue to leverage our strengths to offer our customers new products and services that help them achieve their business objectives and win in the marketplace. As Ozzie might say, we plan to put our best lineup on the field every day so we can continue to serve you better. We hope you enjoy reading CME Magazine.
To recognize the impact of other groundbreaking contributions wherever they have made a difference. CME has created new products. 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. 2 • Issue 2 features 6 9 on the cover Ozzie Guillen went from a favorite White Sox ballplayer to the manager that delivered Chicago’s first World Series trophy in 88 years. INDUSTRY CONNECTIONS CME Globex to Host NYMEX Contracts PARTNER TIES Best of Two Worlds 12 20 26 GLOBAL PLATFORM Indian Derivatives Markets: Great Expectations FINANCIAL FOCUS Home Is Where Your Hedge Is: CME Launches Housing Futures 14 IDEAS THAT CHANGE THE WORLD The Wizard of Oz Chicago White Sox manager Ozzie Guillen tells it like it is. we are featuring Ozzie Guillen. 18 MARKET INSIGHTS • Recognizing the renminbi – CME to launch Chinese currency contracts • Tradebook ’em.Ideas That Change the World Summer 2006 • Vo l .com . 2 cme magazine | www. shares his views about the new CME housing futures and vision for risk management in the almost $22 trillion U. CUTTING EDGE Electronic Eurodollar Options Set for Takeoff departments 4 CURRENT PULSE • Going hog-wild • Future perspective on pensions • Commodities for the long haul • Visitor from down under As a proven leader in innovation. creating a successful business model that other leading exchanges are following. whose player and managerial skills have brought home a winner. Danno – Bloomberg TRADEBOOK offers CME Eurodollar options • Why wait? – CME offers European-style end-of-month S&P 500 options • Won for the money – CME will offer Korean won currency contracts 22 GUEST COLUMN Protecting Americans’ #1 Asset with Robert Shiller Professor Robert Shiller. In this issue. We invented financial futures and were the first exchange in the United States to demutualize and become publicly traded. real estate market. See page 14 for the full story.S. Chicago White Sox manager. 28 AT YOUR SERVICE • CME DataSuite and DataMine illustrate how CME brings valuable data to customers. markets and technologies that have changed the world of modern finance. a founder of MacroMarkets LLC and pioneer in real estate research. Here’s how he brought Chicago a World Series championship and how he wants more. Our breakthrough ideas have generated a range of risk management tools that improve the way markets work for customers everywhere. • Graduate business students find the key to a future in futures.cme.
But. As an innovator and pioneer in the derivatives space. Summer 06 | cme 3 .Identifying how and where to create value is a key challenge for exchanges today. The exchange that designed and built innovative products such as CME FX and CME Eurodollar futures and options and the CME E-mini complex is now breaking ground on a new asset class – housing futures. Plus: Del Monte’s new appetite for energy futures. The derivatives markets in India are barely a decade old. one thing is absolutely clear: these markets are expanding dynamically. CME now has introduced covereds to its functionality. global cash FX marketplace. FXMarketSpace will combine the trade-matching and clearing strength of the CME Globex trading platform with the global distribution network and trade-processing strength of Reuters in the world’s first centrally-cleared. CME continues to push the technology envelope with its electronic Eurodollar options trading on the CME Globex platform. CME and the New York Mercantile Exchange are doing just that with a new agreement that puts NYMEX’s contracts on CME Globex.
” says Taylor.News about CME and its products and services GOING HOG-WILD CME celebrated the fortieth anniversary of its hog futures in April by announcing a year-on-year rise of more than 30 percent in average daily trading volume.cme. Attended by more than 50 women from major financial institutions. how they work and how they might be incorporated into risk management for pension funds. The contract was launched in 1966 with settlement in physical delivery of live hogs. ribs and loin. and this was an important audience to convey that message to. while the average daily notional value in April 2006 reached $474 million.” More than 2 million lean pork contracts were traded on CME in 2005. “Futures and options are becoming more mainstream. managing director of CME interest rate products – to host a panel discussion on futures. managing director of CME products and services.com/leanhog FUTURE PERSPECTIVES ON PENSIONS One of Chicago’s leading financial services networks.com . It is considered a leading indicator of retail prices for pork chops. president and managing director of CME clearing. www. “The amount of money invested in pensions is enormous.” 4 cme magazine | www. The contract is now cash-settled only and has traded on the CME Globex electronic trading platform since 2002.cme. exporters and producers to hedge exposures. recently tapped three CME senior executives – Kim Taylor. making it easier for importers. 2006. CME Chairman Terry Duffy says the contract has become “the established marketplace to hedge pork price risk. Tina Lemieux. The record for a single day of 67. and Robin Ross.314 contracts was set on January 12. the discussion focused on what futures are. Women in Pensions. They are attracting more market participants as a greater number of people understand the safety and soundness of exchangetraded products like ours.000 contracts that year. and traded just 8.
What matters to me is the enduring character of the relationship between Australia and the United States because it is important to our future.cme. is to find out why. To do so. This article can be read in its entirety at www. In a recently published paper entitled “Facts and Fantasies About Commodity Futures. Prime Minister of Australia and Terry Duffy. From this.10 compared with 14.23 percent. who was passing through Chicago following a visit to the White House. but with less risk. tour.com/whartonpaper John Howard. Asked to comment on the warm reception he received throughout his U. almost identical to those for the S&P 500 stock index. Chairman of CME Summer 06 | cme 5 .S. the researchers say. spoke later that day at the Chicago Council on Foreign Relations. venturing onto the trading floor and directly into the S&P pit with other CME officials. according to two finance professors at prominent Ivy League business schools. Geert Rouwenhorst at the Yale School of Management measured historical risk premium in the commodity futures markets. But commodity futures proved less risky. “The capital of a nation endures. individuals occupy the stage for a certain period of time.” Gary Gorton at the University of Pennsylvania’s Wharton School of Business and K. Howard.85 for equities. despite the fact that their prices are negatively correlated. with a standard deviation of 12. they constructed an index based on data from 1959 through 2004 on commodities traded on CME and the New York Mercantile Exchange. he said.VISITOR FROM DOWN UNDER Australian prime minister John Howard paid a visit to CME on May 17. they recorded annual compounded returns on commodity futures investments at 9.” COMMODITIES FOR THE LONG HAUL Commodities offer the same level of returns as stocks.98 percent and a risk premium of 5. Their next topic.
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Inc. as it did with the successful CME-CBOT clearing link beginning in 2003. CME will host all NYMEX energy contracts on the CME Globex platform. to fill needs in such marketplaces. “I think we’ve done a good job of proving that with the success of the clearing link agreement with the Chicago Board of Trade and now with a long-term trade matching services agreement with New York Mercantile Exchange. In the second phase. “In terms of how we can help NYMEX. parent company of the New York Mercantile Exchange (NYMEX). Access to electronic trading of NYMEX products is now available virtually 24 hours a day on the CME Globex electronic trading platform. CME will designate a number of market makers to build electronic liquidity at NYMEX member rates. By hosting NYMEX contracts. starting June 11.” Donohue says. the agreement with CME provides an enormous boost for energy and metals contracts. CME to host NYMEX contracts on CME Globex platform Identifying how and where to create value is a key challenge for exchanges today. which will bring great value not only for our customers but also for our shareholders. They will now be traded simultaneously on CME Globex and the NYMEX trading floor (commonly called side-by-side trading) and continue to trade on CME Globex when the NYMEX floor is closed. CME Globex is the exclusive electronic trading platform for metals products currently listed on the COMEX Division of NYMEX.feelthe POWER Under a technology services agreement that runs until 2016. All NYMEX contracts traded on CME Globex will be cleared by the NYMEX clearing house. Also. the deal further expands the most diverse product mix in the exchange world. NYMEX will offer cash-settled energy futures contracts for all listed months. “We are proud to have the world’s largest energy trading complex on our system. we have made significant investments in CME Globex over the past eight years.” says Craig Donohue. this agreement with NYMEX creates the most diverse electronic trading platform in the world.. Win-win The agreement is a major achievement for both exchanges. “Today the platform is one of the most scalable. CME became the exclusive electronic trading services provider for NYMEX’s energy futures and options contracts. CME Globex helps open up the world’s largest energy market to unprecedented around-theclock global trading of energies and metals. NYMEX will offer physically delivered energy futures contracts. spending more than $1 billion on technology. We’re covering interest rates. The hosting agreement also fits with CME’s strategy of finding synergies within its field of expertise and then pushing Summer 06 | cme 7 . CME and NYMEX Holdings. And in a very unique way. with an anticipated third-quarter launch. heating oil and gasoline futures contracts. fastest and most widely distributed in the world. In addition to NYMEX liquidity providers. CME CEO. CME showed the power of this platform through a prior hosting agreement for NYMEX miNY crude oil and natural gas futures contracts from June 2002 through November 2005. announced a deal in April that aims to provide value at every level – to shareholders. no later than six months from the initial June launch. “Providing third-party transaction and clearing services has been a key part of our growth strategy over the past five years.” For NYMEX. customers and end users. CME chairman.” NYMEX executives are excited about broadening the exchange’s distribution network through CME Globex. including the benchmark crude oil. In the midst of a fast-changing landscape. stock index futures.” says Terry Duffy.” In phase one. which are already very liquid. foreign exchange. natural gas. For CME. “This further diversifies our exchange. We operate in more than 85 countries and trade virtually 24 hours a day. agricultural commodities and now energy.
equities and commodities. and for the (currently) less liquid back end of the curve. This also provided valuable leverage on the physical market. “We do look out at our fiscal year and also beyond that. commodity trading advisors and other professional traders want to use Globex as their vehicle to trade these most volatile markets. “We absolutely know our costs now. as CME begins hosting NYMEX energy contracts on the CME Globex platform Del Monte is so pleased with the results of the natural gas trading program that it is developing a similar strategy to hedge heating oil against its diesel fuel costs. with the futures markets we could extend out even further. You will still need the floor and the brokers. expanding that growing pool of participants. with an even more uncertain market ahead. So it’s much easier to establish targets and strategy. and options. We’re now more market focused than cyclically focused. moves energy derivatives firmly into the mainstream of investment instruments. also provides customers with a choice in where they want their order executed.com/nymexoncmeglobex 8 cme magazine | www. which will in turn drive further evolution. “A lot of companies don’t do this because they don’t have the experience or vision and think it’s more complicated than it is. To attract such participation. The combination of NYMEX and CME brand names. says Del Monte employs basic hedging strategies and trades natural gas futures 12 to 18 months out. as well as the rising importance of energy futures across every financial market. open outcry will still be important.” says John D’Agostino.” www. “This technology agreement will dramatically increase our worldwide distribution while providing additional liquidity to our open outcry markets.” D’Agostino adds that this deal is more than simply offering energy trading electronically. endowments and even corporations that never previously hedged energy price risk have greater access than ever with Globex to trade a commodity that is critical to their bottom lines. founding partner and chief operating officer of MotherRock LP in New York.” says NYMEX Chairman Richard Schaeffer. but also how the trading floors still offer value to customers wanting to execute certain types of trades through human hands.com . To Allen. Howard Anderson.“NYMEX has had a long-standing relationship of cooperation with the CME.” says Scott Allen. president of Allston Trading in Chicago and a new market maker in NYMEX energies. The company also is looking to hedge electricity. these are programs that simply make sense for a company like Del Monte. Now large pension funds. There’s a huge potential increase of volume that can still be symbiotic with the floor. CME has successfully Del Monte develops appetite for energy futures In a period of staggering energy prices. specifically Terry Duffy and Craig Donohue.” Anderson says. which will allow pension funds and endowments to continue investing. And the company has been able to get a firmer handle on its energy costs and save money. on this exciting venture.” Jordan says. who heads up the company’s futures trading.” “The potential is massive. Del Monte Foods decided to take action. “If the market created an opportunity that was attractive from a budget standpoint. which is what we want.” Side-by-side trading. so we are pleased to list our energy contracts on CME Globex.com/nymexoncmeglobex Opening up the field The success rate for floor-based products trading side by side on an electronic platform is well established. widely regarded as the premier electronic trading platform in the futures industry. By starting an internal energy futures trading desk in January. says the agreement is “a brilliant move for both exchanges. in terms of the money we’ve been able to take out in negotiations with the basis side. “Hedging is just very. If we look at some of the models at CME. And then you have the best of both worlds. Del Monte scrapped its old system of procuring natural gas contracts on the physical market and focused on creating a centralized price risk group that uses futures to hedge price risk in natural gas. Bob Jordan. senior manager of risk management at Del Monte. the key heading forward will be to continue to create value for the customer. “We think this will attract new participants.” With the help of outside consulting firm Risk Management Inc. Pittsburgh-based Del Monte now hedges natural gas on the New York Mercantile Exchange (NYMEX). of course.cme. “We know our futures price. very sound business.cme. and we know our basis price. which has a variety of energy risks. We believe the synergies that will be created will not only benefit both exchanges but also the futures industry as a whole. interest rate products.” It is the kind of strategy that CME and NYMEX welcome. We are pleased to work with CME leadership. www.” Allen says.cme. “I see the volume getting much larger. “Hedging energy with futures has resulted in double-digit savings and big dollars for us. “We want new liquidity across the curve. we can see it right now in other contracts. There’s floor trading side by side with CME Globex in currencies. Electronic trading in the front months will continue to increase. Many participants such as hedge funds. CME Globex is sure to be a major factor in offering energies and metals.” demonstrated not only how volumes blossom with side-by-side trading in contracts such as Eurodollars and foreign exchange futures.” D’Agostino says. vice president and procurement officer at Del Monte.. “This is a step forward in the energy market's evolution that will cause commodities to become much more institutionally acceptable.” Allen says.
a far cry from the chalkboards used to record prices in earlier days. Today it is the premier market for FX futures trading. FXMarketSpace will bring the tradematching and clearing strength of the CME Globex trading platform together with the global distribution network and straight-through processing strength of Reuters. most of which is accomplished electronically on the CME Globex platform. global FX cash marketplace when it is launched in early 2007.Pairing the strengths of two vital organizations has potential to create a third entity with even greater strength. Such is the origin of FXMarketSpace. Yet the fact that CME volume presently amounts to only about Summer 06 | cme 9 . CME started the boom in financial futures when it introduced foreign exchange (FX) futures to the world in 1972. The result will be the world’s first centrally cleared.
managing director of CME foreign exchange. Sears adds that it will be the only platform that offers true pre. Robson notes. Reuters. In addition. high-speed connection. proprietary trading firms. CME is a strong competitor to the major organizations that form the interbank market and offers the third-largest electronic trading platform for FX. information and data services around the world.” says Mark Robson. Reuters global head of FX. managing director of CME foreign exchange. left to right) Bryan Hunter. by far the most actively traded market in the world. left to right) Rick Sears. who will be chief executive officer of FXMarketSpace. readily available on the CME Globex platform. Ultimately. and choice of access by either desktop terminals or by a direct. more efficient global FX markets. providing guaranteed performance of contracts and reducing counter-party risk.000 bank end-users worldwide. Mark Robson. which trades an estimated $2 trillion every day. OTC Format The joint venture formed by these two innovative leaders will look quite familiar to the vast over-the-counter (OTC) FX market. who will be chief sales officer for FXMarketSpace. In addition to its central role in providing global news. Reuters head of marketing and alliances. Broader Participation Sears adds that FXMarketSpace will broaden access to the FX market for an increasingly growing number of hedge funds. “FXMarketSpace will follow the conventions of the OTC market. is the foremost leader in the FX cash market. Reuters global head of treasury and fixed income.and post-trade anonymity as well as efficiencies around currency settlements. treasury and fixed income. Reuters has several hundred thousand information desktops with transaction-enabling capabilities around the world. the FXMarketSpace model will be very different in structure from the bilateral agreements and “call around” tradition of the OTC market. competitive bids/offers. What Reuters adds are terminals already located at 17. meanwhile. (bottom row. • Anonymous trading. with perhaps 100. a concern of cash FX markets where bilateral agreements are only as good as the party on the other side of a trade. it offers a range of FX products and is a prime player in currencies involving the British pound and Australian and Canadian dollars. that will create fairer. • A central-limit order book offering multiple. FXMarketSpace team: (top row. FXMarketSpace will offer FX cash market customers the advantages that CME has long offered participants in its FX futures markets: • Centralized clearing. global head of treasury and fixed income at Reuters. Quoting will be in minimums of 1 million of the base currency – for example $1 million versus the yen – and other features will be carried over from the OTC market.6 percent of all FX trading shows the potential for further growth. such as FXAll or Hotspot. director of CME foreign exchange products. forward markets. At the same time. • Transparent pricing.cme.” points out Rick Sears. which is fragmented into a number of different independent deals and prices that are arranged between two parties on a variety of trading mechanisms. providing efficiencies that are not available on other ECNs.000 of those in front of people interested in trading FX.com . Tarun Anand. “FXMarketSpace will be an alternative to the current spot and New Concepts for OTC But FXMarketSpace takes another evolutionary step in response to the rapid increase in the popularity of FX as an asset class and the advances in technology in electronic trading. pension funds and other 10 cme magazine | www. according to Robson. important to customers who prefer to keep their trading positions private. covering much of the business conducted in the interbank market. In notional value terms. Mike McCorkle.
and feedback on the new arrangement has been very positive. The board of directors will have three members from each partner. Sears says. and Devin Wenig. chairman emeritus. In addition to Robson and Sears. as chief operating officer. Beta tests are scheduled for late 2006. Craig Donohue. central counter party model. FXMarketSpace’s central counter party model will offer these institutions the same access to the best price as larger banks. non-bank institutions. chief executive officer. These customer groups have been responsible for the growth of activity in a number of financial markets but have been especially interested in adding FX to their programs in the last few years. and post-trade efficiencies. chief executive officer. cme. with the third member to be named. Reuter’s directors include Tom Glocer. They may have an interest in FX trading to generate revenue from their customers or for their own proprietary trading desks. Reuters and CME have been working on the project for months. Directors from CME will be Terry Duffy. FXMarketSpace marks another progression in helping them access the electronic FX marketplace.buy-side.com/cmefxmarketspace Summer 06 | cme 11 . However. chairman. and FXMarketSpace’s launch is planned for the end of the first quarter in 2007. The net result is that FXMarketSpace could bring many new participants to the world’s FX trading community because of its advanced technology platform. With the increasing participation and sophistication of these traders and their high-velocity algorithmic programs and trading models. competitive prices. the other staff member named so far is Bryan Hunter. and Leo Melamed. FXMarketSpace also will approach regional banks and other financial institutions. it will still take some time for the exchange to test the trading platform and for customers to gear up on their end. director of CME foreign exchange products. but they might not have adequate credit lines or meet the other criteria of the first-tier participants currently involved in the interbank market networks. executive director and president of the business division.
energy products and industrial products such as plastics. Retail traders dominate equities Indian equity futures – both index and single stock futures – started trading in 1993 on the National Stock Exchange (NSE). now trade in India. Indian investors are actively trading their own markets as well as markets around the world. the leading financial derivatives exchange in India. Growth from April 2005 through March 2006. There is tremendous potential for exchange-traded derivatives in India. the NSE is still much smaller than CME and other 12 cme magazine | www. primarily on three exchanges. Foreign investors are eagerly seeking out the Indian markets. the largest democracy in the world. century-old cash market. spices. and traders have aggressively embraced commodity futures contracts. in trade value terms. and there is a strong. including fiber. Local businesses are driving commodity futures. but one thing is absolutely clear. edible oil. farmers. As price controls have been gradually lifted. Commodities in ascendancy Commodity futures in India are just three years old – they were essentially banned until April 2003 – but already comprise the nation’s largest futures marketplace.com . producers. the local investment community responded enthusiastically. these markets are expanding dynamically. increased by 373 percent. agricultural products. The Indian economy is still largely agrarian. Commodity options are prohibited too. And all this is happening despite a tangle of regulations that still limit these markets.cme. In this country of more than one billion people. freight and electricity. but more than 100 distinct commodities.The derivatives markets in India are barely a decade old. In terms of total futures and options volume. But once the government started lifting restrictions. both home grown and imported. while also considering allowing exchange-traded “soft” commodities like weather. But the government is actively discussing liberalizing these rules. as neither Indian nor foreign institutions are currently allowed to trade in these markets. Nearly all types of forward contracts were prohibited in India until the late 1990s. Gold and silver top the commodity charts.
In the past few months. Lifting the restrictions on capital accounts would significantly affect the Indian currency markets.000 per Summer 06 | cme 13 . Retail trades account for more than 95 percent of the total volume in equity index futures and single stock futures. The Ministry of Finance is working to remove regulatory hurdles.73 $ 362. associate director of CME research and product development. forwards and options are actively traded in these markets. the banks even have traded credit default swap contracts. CME’s role in India CME is currently offering expertise in developing markets and products.23 $ 338. has been working with the banks and the exchanges to develop both the cash and derivatives markets in interest rate products. Local banks and businesses are clamoring for these products. A clamor for interest rate derivatives The true potential for derivatives in India will really be opened with the introduction of exchange-traded interest rate products.66 $7. Indian mutual funds and other institutional investors are prohibited from trading in overseas markets.541. Combined with the ongoing efforts to open up the local derivatives markets to a broader investor base. Currently.31 $2. it is clear that this growth story has just begun. the Indian rupee is convertible on the current account – for trade in good and services – but restricted on the capital account.00 per USD prevailing on April 17. This article was prepared by Sayee Srinivasan. they are still non-existent in India. Spot. Indian mutual funds have only recently been allowed to trade equity futures. the NSE now ranks fourteenth among all the derivatives exchanges in the world. The Reserve Bank of India.11 $ 941.35 $ 3.20 $ 294. Some of Foreign investors can move money freely in and out of the country. a key NSE product. has communicated the government’s readiness to move towards capital account convertibility. *Note: The local currency values were translated into USD using the exchange rate of INR45. But there is a $25. The banks have stepped up the use of interest rate swaps for hedging risk and they also are using more forward rate agreements. the Indian Prime Minister. But thanks to total volume growth of 76 percent in 2005.80 FX products on the horizon Further. with foreign institutions accounting for the rest. Growth in these markets has been achieved despite limited institutional participation. grew by more than 50 percent last year over the previous year – a faster rate even than CME’s fast-growing CME E-mini S&P 500 futures. Financial liberalization is moving at a faster pace than most market observers had been anticipating.23 $2.530.52 $1. Although these year limit on Indian investors looking to trade in overseas markets.666. which have not taken off there yet as they have in other countries. Financial liberalization is moving at a faster pace than most market observers had been anticipating. the country’s central banking authority. building targeted educational programs. Foreign institutions as well as local businesses can hedge their currency exposures in the domestic foreign exchange market. and assessing connectivity issues.exchanges in more developed markets.298. GREAT EXPECTATIONS are among the largest contracts traded in the United States and Europe. and Indian derivatives may soon be more integrated into the global marketplace. 2006) Commodity Turnover in $ Millions* Gold Silver Chana (chick peas) Urad (black legume) Guar seed Soy oil Crude oil Sugar Tur (lentils) Wheat $ 7. Top 10 Commodities Traded on Indian Futures Exchanges (Measured by value of turnover for the two weeks ending April 15. But there also seems to be a clear preference for the regulatory certainty and transparency that exchangetraded instruments would provide. This would substantially ease the flow of investment money in and out of the country. and Indian derivatives may soon be more integrated into the global marketplace. CME will participate in the FOW Trade Mission in India in September and the FIA Conference there in October. and the Securities Board of India also is involved in facilitating the growth of these markets. Manmohan Singh. exciting times also are in store for the currency markets in India. 2006.459. But with more participants allowed into these markets. that could change quickly.344. Volume of the S&P CNX Nifty 50 Index futures.
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and some media pundits predicted his tenure would be measured in weeks rather than seasons. The wisdom of that decision became readily apparent. speed and defense in place of raw power at the plate. energy and enjoyment of the game. honed during his stellar 16-year playing career in the major leagues. His remarkable success story offers valuable lessons in leadership that managers in any type of business can apply. And Guillen. became the toast of Chicago. as the team finished with a winning record. Summer 06 | cme 15 . Williams was looking for a leader. Williams also knew Guillen would bring to the team much-needed enthusiasm. But when the White Sox faded down the stretch. When White Sox General Manager Ken Williams chose Guillen to manage the club following a disappointing 2003 season. he had no prior experience as a manager and bore a reputation of erupting without warning. the man whose offbeat ways had made him an unlikely choice to lead the team. But Williams believed that Guillen’s baseball knowledge and instincts. Ozzie Guillen led the Chicago White Sox to their first World Series title since 1917 and was named American League Manager of the Year. and saw Guillen as the ideal man for the job. Skeptics doubted that Guillen’s act would sit well with the current generation of players. offset his lack of managerial experience.Guillen’s Unique Leadership Style Sparks White Sox to World Series Championship and Provides Valuable Managerial Lessons that Apply to Organizations Worldwide Just two years after being hired to turn around a talented but inconsistent team. Guillen’s performance in his first season at the White Sox helm justified Williams’ faith. the move was deemed controversial by some. The White Sox cruised virtually unchallenged through most of the 2005 season. Guillen persuaded Williams and team owner Jerry Reinsdorf to remake the roster to emphasize pitching. survived a September scare and then steamrolled through the playoffs with only one defeat to claim the World Series title. Although Guillen had been a fan favorite during his 13 years as the White Sox shortstop.
“It’s just baseball the way it should be played. Guillen routinely hugs his players and occasionally bestows a kiss on the cheek of a surprised recipient. and I learned from all of them by paying close attention to what they did and by asking lots of questions.” And how do his players react to being run over by the Guillen express? “They’re not surprised because they’ve already heard it from me. Atlanta and Tampa before hanging up his cleats in 2000. Some examples: In an era when “chicks dig the long ball” and teams live or die by the three-run homer. “I’m just telling the truth. and they know it better than anyone.” he says. and I learned from all of them by paying close attention to what they did and by asking lots of questions. and more often than not he’s right.” his term for calling out underperformers. “Baseball is an emotional game. he retains the respect and support of those who matter most to him: his bosses and his players. He not only departs from the managerial mold.” Guillen says. And rather than confine his congratulations to a hearty handshake like most of his peers. uncle of Hall of Fame White Sox shortstop Luis Aparicio.com .” As a leader. But Guillen.” Unlike the stoics who patrol many major league dugouts. “He taught me about baseball and about life.” has opinions on just about everything and will gladly share them.” he insists. But Guillen takes unconventionality to a whole new level. “It’s for their own good – it keeps them from making excuses for their failures.” he says unapologetically. you fail. “They showed me what managing was all about. Winners accept responsibility and don’t make excuses. “Ozzie just tells the truth as he sees it. Time and again during the 2005 season. At 17. after which he was traded to the Chicago White Sox. to name a few.” he recalls.” Guillen relies on lessons learned during a lifetime in the game. and helped make me the man I am today. Yet through it all. “The day the game no longer excites me is the day I’ll walk away. as his style of play became known in 2005.” Reinsdorf says. Guillen embraces emotion as an integral part of the game. all they have to do is play better. Perhaps the most dramatic example occurred during the 2005 American League Championship Series. defense and sound fundamentals like bunting. Guillen espouses the decidedly retro viewpoint that pitching.” pitchers finish all four games of the sweep – the first time that had been done in the postseason in 49 years. Conventional wisdom suggests that managers should never criticize their players publicly. Most managers today are models of political correctness whose comments hew to the party line and seldom stray beyond the boundaries of baseball. Guillen lives by two principles that guided him as a player. Following his release by the team in 1997. he played in Baltimore. at the drop of a hat.” he says. and I’m an emotional guy. when Guillen let his starting 16 cme magazine | www. But Guillen doesn’t hesitate to “throw players under the bus. his feelings are always there on the surface for all to see. straight and unfiltered. Whether exhorting his troops or challenging an umpire’s call. his outspokenness and candor have landed him in hot water. “It’s not Ozzie Ball. Stints as a coach with the Montreal Expos and Florida Marlins preceded his hiring as White Sox manager. stolen bases and sacrificing runners are the keys to success.Baseball has a long history of colorful managers with their own unique take on the job – men like Casey Stengel. An immediate hit both on the field and with the fans. he obliterates it. “Who cares if some guy took your pitcher deep two years ago on a slider down and away? I just want to know what he’s doing today. On more than a few occasions. the self-described “biggest mouth in baseball. “Most of them just laugh it off. Leo Durocher. If you fail. but if they don’t like it.cme. Guillen signed with the San Diego Padres and played in their minor league system for two seasons. “It’s real simple – “I played and coached under some great managers. “I played and coached under some great managers. Billy Martin and Earl Weaver. One of his most influential tutors was the legendary Venezuelan baseball instructor Ernesto Aparicio. Guillen’s willingness to defy baseball orthodoxy paid big dividends. The first is that the team is more important than the individual.” OZZIE GUILLEN Unlike managers who base their decisions on voluminous computer printouts or who religiously adhere to “the book. Guillen won the American League Rookie of the Year Award in 1985 and spent 13 successful seasons in Chicago.” he explains.” Guillen learned his craft on the baseball fields of his native Venezuela and in major league ballparks across the United States and Canada. the better to avoid bruising their fragile egos.
” “Guillen’s commitment to fun is appreciated and shared by his players. “Ozzie comes in every day with a smile on his face and makes it fun to come to work. it remains to be seen whether the White Sox will triumph again in 2006 or fall short of the mark. you won’t play for me. We may not have had the best talent in 2005. “When I was playing. But whatever the eventual outcome.S.J. That’s all you can ask for out of a boss.” he insists. Guillen hasn’t lost his perspective on what separates winning from losing. Summer 06 | cme 17 . must maintain a culture that can sustain performance and growth over the long term.” Whether the playing field is a baseball diamond or the world of international business. like other businesses. if you’re not a team player. but sports franchises. Baseball is a game. and games are supposed to be fun. “Managers don’t win championships. Cellular Field in Chicago. however. I don’t have any time for guys who won’t lay down a sacrifice bunt instead of swinging for the fences.” Despite the adulation that has come his way for leading the White Sox to their historic World Series title. Individuals may come and go. Creativity and innovation. leaders need not conform to a conventional pattern in order to succeed. All I did was get them to believe in and play for each other.” Guillen’s second guiding principle is to keep the game fun. you aren’t going to win. “If you don’t have good players. That’s why we’re called baseball players. you can’t buy a championship ring. That you have to earn. It doesn’t matter how much money you make. along with the courage of one’s convictions in taking the road less traveled. White Sox fans and management can be sure that Ozzie Guillen will continue to practice his singular brand of leadership. and that’s why we won. there wasn’t a single day when I didn’t have fun. “Some people take this game too seriously – it’s not fun for them. not baseball workers. With another baseball season in full swing. but we were the best team.” says catcher A. can be a winning combination.Chicago White Sox Manager Ozzie Guillen shown with CME Chairman Terry Duffy at U. and it takes a team to earn it.” he says. and that’s still true now that I’m a manager. it’s work. Pierzynski. getting the most out of the team is a manager’s most important priority. Good players know that it takes 25 guys to win. That’s why I would rather have good players than superstars. players do. As Ozzie Guillen’s success clearly demonstrates.
paired against the U. Asia.S. Total trading volume on CME Eurodollar options rose 234 percent in 2005 compared to 2004. Additionally. All contracts will be traded electronically on the CME Globex electronic trading platform.com/renminbiproducts Tradebook ’em. CME chief executive officer. in addition to CME offices in Tokyo and Sydney and the telecommunications hub in Singapore.cme. www. 2006. managing director of CME interest rate products. exchange-listed interest-rate option contract. “We believe that these new renminbi contracts will lead to increased participation by current CME FX customers as well as introduce CME FX markets to new ones. headed by C.cme. Market makers will be enlisted to provide continuous. CME Eurodollar options on futures are the world’s most actively traded.com .com/bloombergtradebook 18 cme magazine | www. the euro and the Japanese yen. Offering the contracts on TRADEBOOK represents “an important distribution opportunity for us. Wong. dollar.Insights on CME Products and Services Recognizing the renminbi To broaden trading opportunities related to China and the Asia-Pacific region. August 27. with trading scheduled to begin Sunday. www.” says Robin Ross. TRADEBOOK is a fully integrated electronic trading platform that is now the world’s leading electronic agency brokerage for equities and derivatives.cme. transparent and competitive markets. The office will serve as CME’s primary sales and service office in Asia. CME recently announced it will be listing futures and options on the Chinese renminbi.F. Danno CME recently announced that users of the Bloomberg TRADEBOOK system can now trade CME Eurodollar options on that platform. CME managing director.” said Craig Donohue. CME has opened an office in Hong Kong.
cme. Average daily volume for options trading on all CME products rose from 19.com/europeanoptions Won for the money CME. The new contracts. They are also expected to boost overall growth in the electronic options on futures markets. will begin trading futures and options-onfutures contracts on the Korean won later this year exclusively on the CME Globex electronic platform. which kicked off May 22. expanding trading into China and a new telecommunications hub in Singapore.com/cmekoreanwon Summer 06 | cme 19 . director general of the international finance bureau of the Korean Ministry of Finance and Economy. enable customers to initiate end-of-month trades at CME rather than over the counter and gain the benefit of CME Clearing. have expiration dates that fall on the last trading day of the month.cme. whose holders are allowed to exercise them only on the date of expiration. Recent CME initiatives in the region include new Asian-index products.” Kwon says.000 in February 2005 to 28. says he believes the new futures contracts will facilitate the internationalization of the won. www. www. Tae-Kyun Kwon. The new contracts. CME CEO Craig Donohue says the won listing represents an important facet of CME's long-term Asian growth strategy.Why wait? CME has begun trading European-style end-of-month options on its popular equity index S&P 500 and CME E-mini S&P 500 futures.000 to 79. Average daily volume in such contracts grew from 10. “We expect that boosted risk management on the won through CME will encourage foreign investments in wonbased financial products.000 over the same period. in co-operation with the Korean Ministry of Finance and Economy.000 a year later.
com .cme.20 cme magazine | www.
San Francisco and Washington. “This has the potential to redefine how real estate will transact in the future. D. CME now offers housing futures on 10 cities – Boston. In addition. builders and lenders a way to hedge risk in a market that has never been hedged directly before. the other with cash flow and returns driven by downward performance of that same market. “There’s no underlying OTC market. Felix Carabello. which track movements in housing price values. By providing a means of hedging exposure to home prices. the scale and its pervasiveness. However. devoid of any liquid derivatives products. N. The architects and builders of the contract are confident that this is the right time for such a contract. The contracts have enormous potential. you’ll see a lot more transparency brought to the housing market. Los Angeles. “With this contract.” TERRY LOEBS The firm. CME partnered with MacroMarkets and Standard & Poor’s to launch derivatives based on the firm’s Case-Shiller Home Price Indices (CSIs). and guarantors. investors. housing futures and options users can diffuse the potential impact of sustained declines in housing prices. Individuals and companies also can invest in one or more real estate investment trusts (REITs). • Provide an innovative way to participate in the real estate market without having to buy and sell properties..C. Miami. Las Vegas. listed on the CME Globex trading platform.“ Returns of late on equity and bond investments have not been stellar. from construction firms to developers to real estate investors. The product would involve a pair of securities. “When you look at the size of the market. Yet real estate in the United States is still a relatively illiquid marketplace and.” Carabello says. based in Madison.” says Terry Loebs. the scale and its pervasiveness. New York.S. residential real estate at almost $22 trillion in 2005.cme. CSIs are widely recognized as the most authoritative home price indexes for tracking home price trends and are used by some of the country’s largest financial institutions for mortgage analytics and real estate market monitoring.” Carabello says.” For example. And housing historically has not been highly correlated to other asset classes. transactions that are both time-consuming and laden with costs. which have no direct hedge against major moves in the physical real estate market. real estate touches individuals as much as institutions.” Loebs says. as well as a contract on the composite index of the ten cities. The exchange that designed and built innovations such as FX and Eurodollar futures and options and the CME E-mini complex is now breaking ground on a new asset class – housing futures. says the new real estate contracts evolved from customer demand for a product that addresses real estate risk directly.CME is known as the architect of financial futures. these instruments: • Create a new means of risk transfer to a broad range of investors. Loebs adds that hedge funds and others looking for another asset class could also benefit from the contracts. “The challenge for us is that this market doesn’t exist today at all.com/housingproducts Summer 06 | cme 21 . Beyond that. Denver. director of CME alternative investment products. which has a licensing deal with Standard & Poor’s to publish the CSI traded on CME.” MacroMarkets also is looking to build out the market for housing index products on the over-the-counter markets. Chicago. one of which has cash flow and returns driven by upward performance of a selected residential real estate market. “When you look at the size of the market. but CME and MacroMarkets executives said it will take some time to develop and grow the market. are settled in cash. is also seeking to develop cash housing securities that could be traded over the counter. larger than the $17 trillion in stocks and comparable to the $25 trillion in fixed income. • Have the potential for fostering stability in the housing industry. The Federal Reserve Bank valued U. mortgage and valuation insurers. not residential properties.J. CME launched housing futures contracts in May as a way to give traders. real estate touches individuals as much as institutions. So I think a lot of folks are looking to gain exposure to housing. there literally are thousands of companies. given the size of the physical market.” www. The contracts. “The potential user base for the product is enormous. Indexes are updated once per month and use individual residential closing prices from each respective city. based on the value of the indexes for each of the cities. until now. CME and MacroMarkets are marketing to everyone from insurance companies and pension funds to others such as assetbacked securities lenders. managing director of housing products at MacroMarkets. San Diego. REITs typically track the performance of a specific portfolio or index of commercial real estate properties. the most common residential real estate investment is the purchase of one or more homes.
and myself. real estate market. Macro Markets. Shiller is a professor of economics at Yale University and a partner in MacroMarkets LLC. how it got started and what your firm does. the first high-quality housing index ever produced. a professor of economics at Wellesley College. Allan Weiss. That’s different from the stock market. I hope this isn’t immodest. Home prices have momentum and go in the same direction for a long time. With our better indexes. He has also produced several books. There 22 cme magazine | www.cme. CME: Describe what MacroMarkets is. Until then. That index is now the cornerstone for CME’s new housing futures contracts. known today as the most accurate index for residential home prices. He spoke with CME Magazine about the new CME Housing futures and his vision for risk management in the almost $22 trillion U. CME: Why is that? RS: One very important reason is that real estate is a very illiquid market. RS: There was an earlier company called Case Shiller Weiss that was founded by Karl “Chip” Case. he helped develop the Case-Shiller Index. we discovered that home prices have been fairly smooth through time. home price indexes tended to be plagued by noise. who is also one of the founders of MacroMarkets.S.Professor Robert Shiller is a pioneer in research and product development of real estate and other financial instruments. including Irrational Exuberance. As a co-founder of Case Shiller Weiss (now Fiserv CSW). This was an important discovery: it means that real estate markets are very inefficient and very predictable. The Case-Shiller Index was first published in the late 1980s and was. and New Financial Order: Risk in the 21st Century.com . a New York Times best seller. my former student at Yale.
Part of that business is to be the first to approve a loan because whoever approves a loan first often gets it. usually pretty accurately and within seconds. It is the single biggest component of national wealth. Why do you think it is needed now as an exchange-traded contract? RS: The real estate market is unique because it represents something so fundamental – our very homes. It’s of great interest to the general public. we could update both past sales prices with our zip code index. housing futures will probably have a slow beginning. When you look at what eBay has done. and it’s an amateur market really. That’s partly because of the technology and computerized databases for our indices. We were able to help speed up the approval process to a matter of minutes. the principles of modern finance are filtering down to more people. Very early on. which later became the name of our company. Similarly. CME: Let’s talk about the index. makes it easier to launch new products. what do they show and how will they be traded as futures? RS: The Case-Shiller Indices are based on price changes of individual singlefamily residences over time. If it was sold a couple of times in the past. electronic technology makes it possible to start trading risk in our individual homes. so we developed an automated valuation model (AVM) that allowed us to price individual homes. who were your clients and how did they use your products? RS: We began with mortgage portfolio managers who wanted our price index information by zip code. Then we discovered that mortgage originators would be interested in fast computerized appraisals. where people are living in homes that are not protected at all. So if someone wanted to know what a house was worth now. we were usually able to look up earlier selling prices. I wrote a book called New Financial Order: Risk in the 21st Century. There is still a lot of risk that isn’t managed. and our very first idea was to have an index that would be settled as a financial contract. they have a whole section on real estate. It’s huge. It’s talked about all the time. CME Globex. This is a trend that will continue and transform our economy for decades. and get a very good estimate of price today by taking the mean of the two. without even looking at the physical properties. We sold CSW to Fiserv.and high-priced homes. we thought. insurers and Wall Street firms. and a lot of little adjustments. a home-pricing research company that works with mortgage lenders. That way. We really are only about halfway through the process of risk management. If you look at a newspaper. bigger than the stock market at almost $22 trillion. We also used a price tier system for low-. we were able to devote our efforts full time to financial products. which we called MacroSecurities but recently changed to MacroMarkets. Then I wrote a book in 1993 called Macro Markets. middle. We then launched our company. would salivate at the thought of being able to trade in those markets at a low cost because there is so much predictable movement. CME: So how did Case Shiller Weiss evolve into the company that is MacroMarkets today? RS: We started Case Shiller Weiss in 1991. What other product has its own section in the newspaper? It’s ironic that we haven’t seen a futures and options product on it. But even though the real estate market is a huge market. which will be used for the housing futures contract. Mortgage and home equity loan originators found our AVM very useful since they needed a value of the home fast. Traders. we had a database with 70 to 75 percent of all U. CME: How do your indices work. we thought that would be reason enough to create this market. thus. there’s been a tremendous proliferation of auction markets for everyday items.is no futures market for houses. So we decided to sell Case Shiller Weiss (CSW) but keep the rights to the indices for financial applications. Sam and I came to CME about 18 months ago to present our product. The other thing we also have now is a better electronic marketplace. We established MacroSecurities technically in 1999 but didn’t start it really until 2002 when we hired Sam Masucci as CEO. they Summer 06 | cme 23 . Part of what makes that possible is information technology. The theme of the book was that we need markets for a variety of risk. CME: When you first started Case Shiller Weiss. In other words.S. Chip Case and I were very interested in financial products. An example of that is real estate. Allan Weiss. How did we do it? Well. and argued that there has been immeasurable progress toward what I call the democratization of finance. home sales for decades.
it’s not just interest rates. The problem is that REITs don’t correlate very well with home price indices.cme. You can now manage it. And interest rates have a very weak correlation. There has been an uptrend in home prices because people are building bigger homes. and these numbers will guide every decision that they make. and we watched it fade away. residential investment as a percentage of GDP was 6.2 percent. The indices continuously analyze and qualitycontrol residential property data collected from several sources and use proprietary software to produce “repeat sales” indices for real estate markets throughout the United States.com/housingproducts We just have to get the message out that you don’t have to accept risk in real estate. Pundits will watch these prices much as they do the prices quoted in the Federal Funds futures market today. And CME is the strongest futures market in the world. partly unpredictable and increasingly volatile. You can now manage it. while the Federal Funds rate is managed by some very well-meaning central bankers who want nothing more than to stabilize the economy. which risks knocking the wind out of the market. Even so. We’re listing futures contracts by city. Maybe the bulls are still right. Remember what happened in the 1990s with the stock market boom. But if you look at it. There are a lot of people who want to take short positions. according to some economists in real estate. recognition that the prices shown in these markets have fundamental import to the economy. I believe that interest in the contracts will eventually be spurred by the public are actually more important to the business cycle than the Federal Funds market prices are. but there are also people who want to take long positions. And this is a good time to launch a contract because we’re right at a turning point in housing prices. ROBERT SHILLER CME: What does the housing price index futures contract need in order to grow? RS: CME is identifying some market makers. but lumber doesn’t really correlate to home price indices. So that is not relevant to someone trying to hedge the risk of a home. The same could happen in real estate. which will help to establish initial liquidity. But it could generate a tremendous amount of publicity. In the first quarter. Real estate has been a prime leading indicator for the economy.cme. Real estate prices CME: What does CME bring to the contract? RS: CME has a reputation for being innovative and providing good execution. CME: It sounds like a good time to start a contract. where do you see the market going? RS: It can’t stay strong forever. The only kind of information we use is the price of a home sold. That is the highest since 1950 and the height of the Baby Boom. it is. because the former is a wild card.reflect changes in real estate values corresponding to properties that have sold more than once. Looking at the latest S&P/Case-Shiller Home Price Indices. www. The indices not affected by changes in the size or quality of homes. we believe it has the right people and right platform to succeed. There was such a strong mass psychology then. Another reason I am concerned is because of the high level of construction now. given the high volatility we have seen recently in real estate prices.com . and REITs are generally not organized that way. CME:: As someone who has watched the real estate market for years. It sounds plausible that interest rates are driving the housing market. The world is divided into those who believe we’ll have a soft landing and those who see an outright decline. it may grow slowly because it’s an unusual contract. You could use lumber futures. 24 cme magazine | www. we still see what looks like a lot of strength in the numbers. In these markets we will see at each point the expectations that people have for home prices at each future contract month. We’re running construction now at a very high level. Interest rates have not gone up that much. People will watch every number. We’ve also marketed this contract and believe that people are starting to come in. and I believe that real estate will be increasingly important to the business cycle in the future. We just have to get the message out that you don’t have to accept risk in real estate. They don’t see anything fundamentally changing. CME: Is there any way to hedge the real estate market today? RS: People say you can short real estate investment trusts – REITs. RS: Yes. With the CME Globex platform.
And CME will take it another step when it introduces covered options on CME Eurodollar futures (Covereds) in July. “Covereds are a significant enhancement for CME Globex in terms of adding valuable and critical functionality to electronic Eurodollar options trading. They also can be used as a way to improve prices.” Ross says. “The integration of EOS into CME Globex enabled our ISV – Independent Software Vendor – community to write to the CME Eurodollar options engine. Enhancements have been added continuously since last August. as the integration of the enhanced options system technology into the CME Globex platform brings option traders cost-effectiveness via instant trade confirmations. “ISVs are just starting to roll out new options trading functionality. Straight-Through-Processing (STP) and automatic linkage to analytical/risk management systems.com . New buttons to push Covereds are the latest improvement for electronic CME Eurodollar options traders.” says Jeff Kilinski. 26 cme magazine | www. “Their programs are much more robust and offer much of the same functionality as our native CME screen. managing director of CME interest rate products. • Increased liquidity commitments from major CME Eurodollar market makers virtually 24 hours a day. when the initial Enhanced Options System (commonly referred to as EOS) was fully integrated into the CME Globex platform.cme. The functionality. electronic Eurodollars will continue to grow. CME has been working closely with its ISVs to help them add Eurodollar options to their front-end trading solutions. which we really believe helps stimulate trading. additionally. Covereds are unique option instruments created by combining a CME-defined outright option or option spread with one or two underlying CME Eurodollar futures. They are well-suited for traders who commonly use volatility strategies to trade CME Eurodollar futures and options. • Immediate trade confirmations that are broadcast system wide.” For example. User-defined spreads are spreads composed of CME-defined contracts. since orders are placed anonymously and every electronic request for quote (eRFQ) is sent to every participant simultaneously. It also forged a number of advances and innovations for customers including: • Maximum transparency. activity on the CME Globex platform is presented in real time. With the addition of Covereds. • Improved efficiency. created by traders during the trading session.” says Robin Ross. But as more of the ISVs add options trading to their front-end trading software. CME native screens allow traders to see an active contract viewer with scrolling information that shows RFQs.Electronic CME Eurodollar options are ready to soar with Covereds As an innovator and pioneer in the derivatives space. responses to them. speed and flexibility now available have lifted electronic CME Eurodollar options to the top levels of electronically traded products. director of CME interest rate products. not options. This is a big challenge technically since many of the ISVs have traditionally focused on offering futures trading functionality. CME plans to add more user-defined spread functionality in the first quarter next year. thereby putting that functionality into more customers’ hands. and trades as they occur in real time. CME will embark on the first phase of a CME user-defined spreads initiative that will serve as the model for future functionality in that space. CME continues to push the technology envelope with its newest electronic Eurodollar options trading on the CME Globex platform.
Eurodollar options volume is continuing to move to the screen in a way that is consistent with the movement of other financial products that successfully were listed electronically. On April 28. any market maker can stream hard quotes for outright puts and calls. CME also introduced request-for-cross functionality. “Now that customers have access to the screen and see the transparency of the electronic markets.” Fish says. “You can see what’s trading and even what people are asking for in the markets. which the futures commission merchant community asked for. put doubles. such enhancements have helped boost electronic trading of CME Eurodollar options significantly. head of futures. ”As liquidity continues to improve.” www.49 million contracts. with a record average daily volume of 78. CME posted a record 293. it’s Building interest Collectively. as a total percentage of Eurodollar volume at CME. such as swaptions desks.5 percent at the end of May. The trend has been steady. CME has a group of 15 market makers responsible for providing liquidity in three time zones across the globe and in all strategies. More tra- kind of like standing on the trading floor. electronic Eurodollar options on CME Globex hit a record volume of 1. In fact. Some stream indicative quotes for thousands of combinations and respond to all RFQs. “Our clients will benefit significantly from the greater market transparency and reduced costs associated with direct access to the CME Eurodollar options market. we are starting to see that already. for Barclays Capital. rose from 4 percent to about 7.541 contracts. That’s a feature that many of the ISVs have incorporated into their trading platforms now. CME continued to roll out more functionality for trading electronic Eurodollar options by introducing enhancements such as top order allocation. Professional users and hedge funds also are a large and growing presence. In February. but also in allowing traders to access the markets nearly 24 hours per day. “A very significant amount of volume goes through before the pit opens. are expected to migrate more business to the electronic platform. Currently there are six market makers streaming live hard quotes into the market. not only in terms of functionality. Gregory Fish. In April. and hence more users of the product. who have never traded our product before. it’s kind of like standing on the trading floor. CME currently supports 28 complex Eurodollar options spread strategies. Those records were approached again on June 1.com/enhancedoptions Summer 06 | cme 27 .“With this advanced options functionality. That just brings new pools of liquidity to the marketplace. as well as at-the-money straddles and strategies which have been actively traded in the market. We’re beginning to pick up new proprietary trading firms and hedge funds that have not traded CME Eurodollar options before. You can see what’s trading and even what people are asking for in the markets. they are able to build all sorts of trading models. Ross sees faster growth in the coming months. to 4 p. “We’re starting to see trading by more and more people in Europe and the U. In addition.S.” Ross says.m. we will see a new style of options trader.” With more functionality added to the platform and the adoption of CME Eurodollar options by ISVs. ditional players. “A real advantage of the system is that it enables people to trade overnight and in off hours.000 electronic Eurodollar options contracts traded. for example.” Robin Ross for responding to RFQs for particular expiries. which include five new strategies that were rolled out in February: straddle strips. and 7:20 a.” To support the growing volumes in electronic CME Eurodollar options.m. says the electronic aspect of the product has added tremendous trading flexibility.” Ross adds. North America. ISVs have followed the lead of CME by offering dropdown menus so traders can quickly construct complex spreading strategies. which gives a percentage of the trade to the person who turns the market and serves as an incentive for users to tighten the market.m.” In addition. conditional call spreads and conditional put spreads. call doubles. Electronic Eurodollar options volume. from around 6 a. director of Citigroup Derivatives Markets and market marker for electronic CME Eurodollar options.m. which represented 20 percent of the total CME Eurodollar options volume of 1. and then from 2 p.” says Tim Stack. Others are responsible “With this advanced options functionality.cme.45 million contracts.
George. creating a in 2004 and shortly afterwards did the same for historical market depth. are so large that CME delivers the product via CDROM. calls "end-ofday vanilla-type data services. stamped to the centisecond." He explains that DataMine evolved from E-history because CME's institutional clients – both buy side and sell side – wanted “more granular information” such as top-of-book and market depth data.cme. charts and news for all CME products.html Delivery via CD-ROM or DVD. fully integrated historical trading data service. George says. CME director of information products management.” St. Where: www. DataSuite is a complement to the subscription-based CME E-quotes application which provides real-time streaming quotes. duration and detailed trading information.cme. DataSuite focuses on providing basic market data for developing products or exclusive content that is not normally carried by data distributors or trading front ends for more mature markets.cme. The files of this service.com . formerly called E-history. How: “Although that data was available on our Globex feed. DataSuite is a free online collection of realtime market data for select CME products bundled together in a single application. Traders now can cross-navigate between almost 20 groups of information within DataSuite that were formerly separate postings on the CME Web site.com/trading/dta/hist/ ehist2419. “Strategic use of market data on our Web site has been a very valuable tool in supporting the marketing and promotional efforts around new and existing CME products. “Once we started collecting it. we were not storing it – it was falling on the floor.” says Brian McElligott. or login access to secure FTP Web site. which delivered what Tim St. McElligott says.com/trading/dta/ datasuite.com/cmedatamine 28 cme magazine | www.” How: DataMine is the re-branded version of CME's E-history data service. and commodity contracts. DVD.com www. FX. called Market Depth. Fact box DataSuite What: Real-time data application for select CME products. CME began databasing best bid offer quotes “DataSuite aims to draw traders and speculators at all levels who need access to some real-time data.Diving into the Data Stream CME offers flexible data services to customers CME customers have developed a hunger for market data that just keeps growing. contract size. DataMine is an expanded and re-launched version of CME's historical data service.cme. Following customer demand. And that hunger is driving CME’s most recent re-launches of two of its data services: DataSuite and DataMine. which offers customized access to CME’s complete Endof-Day and Time-and-Sales databases as far back as 1982. we could offer them what they wanted. Such data services will likely expand in the future as more CME customers learn about them. www.com/cmedatasuite DataMine What: Package of customizable CME market data which is based on product. or through a secure FTP Web site.” In February 2006. DataMine users can either subscribe on a regular daily or monthly basis or pay a one-time-use fee. CME added two more products to DataMine that allow clients to access historical Market Depth and Best Bid and Offer data.cme. What is now DataSuite began four years ago as a real-time data page for the popular Eurodollar futures market as it shifted to the CME Globex electronic trading platform. Where: www. CME linked its historical trading data to market depth data. associate director of CME information products. CME also offers bulk purchase discounts and discounted packages based on its popular E-mini equity. Traders now have the ability to recreate an entire daily trading book for any listed CME contract.html Free online at www. The Eurodollar data service is still the most popular of DataSuite's real-time offerings.cme.
University of Chicago Graduate School of Business. CME market education staff organizers and 150 audience members to present their findings. Pamela Plehn (Product Public Relations). All rights reserved. The event showcased the results of more than six months of student work spent analyzing trading systems and technology and interacting with Chicago-area trading professionals – including exchange executives.com info@cme..cme. Inc. To view CME Magazine online. Robin Ross (Interest Rate Products). Reuters. E-mini®.” the paper said.com/cmemagazine For a complete list of CME classes. director of entrepreneurship programs. Information made available on our Web site does not constitute part of this document. Customers will continue to demand features and benefits that push the evolution of trading platforms. sponsors a number of academic programs each year.” says Linda Darragh. CME. William Parke Editorial Advisory Board Maz Chadid (Operations). industry panelists. and new technologies for managing. David Lerman (Equity Products). storing and analyzing large volumes of data.com/edu Summer 06 | cme 29 . IL 60606-7499 312-930-1000 tel 312-466-4410 fax www. David Prosperi (Corporate Public Relations). Dealing 3000 and the sphere logo are the trademarks or registered trademarks of the Reuters group of companies around the world.“ “S&P 500®” and “S&P CNX Nifty 50®” are trademarks of Standard & Poor’s.” All other trademarks are the property of their respective owners and are licensed for use by CME. FXMarketSpace Ltd. NYMEX® and miNY™ are trademarks of the New York Mercantile Exchange. Polsky Center for Entrepreneurship.com/uofchighlights. A video of the event is available at www. CME leaders. Penton Custom Media 1300 E. Inc. post-trade and management systems.” the white paper prepared by students who participated in a unique program at the University of Chicago’s Graduate School of Business that focuses on entrepreneurship. proprietary traders.cme. “Standard & Poor’s®. Full results of the research can be obtained on the CME Web site at www.K. OH 44114 216-696-7000 tel 216-931-9441 fax www.com. Arman Falsafi (Europe). The paper noted the rapid increase in the number of hedge funds and proprietary trading firms – entrepreneurial firms built upon advanced mathematical models that capture unique trading strategies.cme. visit www.cme. working with the “best and the brightest” involved in researching the futures industry. traders. CaseShiller Indices (CSIs) are trademarks of Fiserv CSW. All rights reserved. trading platforms. Allan Schoenberg (Technology Public Relations) CME Magazine is published by CME in conjunction with Penton Custom Media.com with your questions and comments. noting that change in an industry is a “signal for entrepreneurial opportunity. Tim Doar (Clearing). TRADEBOOK® is a trademark of Bloomberg. Gail Moss (Corporate Communications). Human capital is needed to develop new trading technologies. a division of The McGraw-Hill Companies. company) is the owner of the trademark “FXMarketSpace. Mary Haffenberg (Product Public Relations). (a U. CME Magazine is printed on recycled paper. LP. Further information about CME and its products is available on our Web site at www.com Editorial Director Darrell Jobman Art Directors David Bosak Greg Kiskadden A Future in Futures? Do the Math Students looking to work in the ever-changing futures industry need to have expertise in mathematics and technology.cme.CME Magazine CME 20 South Wacker Drive Chicago. Do you have a question for CME Magazine? E-mail us at info@cme. go to www. or to be added to or removed from the mailing list. “The volume of market data from trading is doubling every year. E-quotes™ and Globex® are trademarks of CME. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME rules.cme. Chicago Mercantile Exchange®. 9th Street Cleveland. © Copyright 2006 CME. The Globe logo. John Harangody (Commodity Products). These requirements are among the factors evaluated in “Exploring Entrepreneurship. This fact was reaffirmed by the findings of a group of graduate business students who researched entrepreneurial opportunities in the industry.com/cmewhitepaper. a leader in derivatives education. CME®.pentoncustommedia.” The students recently convened for a full-afternoon program at CME with their professors. Current CME rules should be consulted in all cases concerning contract specifications. used under sublicense from MacroMarkets LLC. and software and systems developers. “We hope this white paper creates discussion around the opportunities and challenges facing the derivatives industry.com Senior Editors Anita Liskey.
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