On April 13, our team visited CME. Opposite to our expectation, there is no crowed trading hall. It totally uses electronic form to trade.
Mr. Farra, the executive director of CME, gave us a brief introduction of the history and overview of CME. In 2007-08, CBOT, NYMEX and CME unite as CME Group, the world’s largest and most diversified derivatives marketplace. CME Group offers the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate.
Charles explained how CME operate nowadays and analyzed the consist of its customers. Recently, 30% customers coming from international grows faster, especially from Asian. About 40% of CME's trading volume are institutional hedges, mainly including hedge funds, banks and corporations. Only 5% are retail customers. The rest of the trading volumes comes from the professional trading companies, and most of them are private speculators.
What impressed me most is CME's attitude towards speculators. They don't view them as evil part of the financial market, on the contrary, they treat speculators as important as hedgers. Because they believe speculators can bring market very tight and provide liquidity!
Among their Asian customers, there are a good amounts of Chinese corporations and banks.
Mr. Farra also presented the difference between options and futures.
The big advantage of option over futures is that option can help to limit the risks with a limited premium.
During the discussion part, our team asked a lot of valuable questions on risk control and core business.
By now, the electric trading dominates their business, which leads to a great position in risk control; at the same time, they have established a solid regulation wall between clearing house and brokers. They reserve guarantee funds in case brokers collapse. Their effectively system has protected CME for several decades, even from the collapse of Lyman Brothers!
Some of the examples Charles used are still very interesting. For example, Exxon Mobil never hedge in crude oil market. The United Airline went bankrupt for its hedging! He also shared his brother's experience of heavy newspapers causing typing wrong numbers in the keyboard.
I was curious how CME survive for 150 years. I was told that CME is a innovative organization. It has launched thousands of financial products by now, including electricity and weather products, to help the suppliers and buyers to hedge risks, although only a few of them are proved very successful.
Our tour continued to 1871, the Chicago Technology D
development Entrepreneur Center. This is a private non-profit organization, aiming at help the technology start-ups and young entrepreneurs to attract precious human talents and compete with Silicon Vally. Obviously, this center has received lots support from local government and social sponsorships.
An ellegent lady working for UIUC guided us and introduced the operation and functions of 1871.
Before I came, I wondered why it is called 1871, after a historical year. Then I realized 1871 was the exact year that Chicago big fire, which burned half of Chicago city into ashes. It's said that after 1871, the Chicago talents start to develop Chicago into a modern city by their wisdom and diligence.
Mike made great effort to help our team on internships. However, we were lack of time to visit other start-ups and companies. And we didn't have chance to visit Nanhua Futures Chicago office.
On our way back to UIUC, we passed by the Millennium park and took a group photo.
Chicago is a city combined history and modern society together. Each time I come, I always learn some new things!
