President and Chief Executive Officer Jim McNulty discussed highlights of CME's current 18-month business plan, based on three major goals: optimizing the exchange's existing business; innovating new products, services and technology; and identifying and preparing for strategic opportunities created by industry consolidation. McNulty told shareholders the business plan also includes completing preparations for an initial public offering of Class A shares.
Gordon summarized several recent CME milestones, including an annual trading volume record of 411.7 million contracts in 2001, a daily volume record of 3.5 million contracts (March 7, 2002), an open outcry volume record of 2.9 million contracts (Nov. 16, 2001), a GLOBEXÒ electronic trading volume record of nearly 727,000 contracts (April 10, 2002) and the busiest month in CME history (45.3 million contracts traded in November 2001). For the first time in 2001, CME became the largest futures exchange in the United States based on trading volume, although it previously had held that rank in terms of open interest and notional value.
"Four years ago when I took office as Chairman," Gordon said, "the overwhelming concern I heard expressed was: How will we save the exchange from extinction? Many in the industry thought that the exchange model was dead. Our Board of Directors set on a deliberate course to develop a sound and comprehensive strategy to answer that question. Events since then have reinforced what I suspect almost everyone in this room already knew. The Chicago Mercantile Exchange is the pioneer, the exchange of innovation, the exchange that forges new ground for the industry." Gordon cited several upcoming anniversaries that are a result of CME innovations, including the 30th anniversary in May of the world's first financial futures (foreign exchange) and the 20th anniversary celebration next Monday for S&P 500Ò stock index futures.
McNulty discussed a number of actions CME is taking to optimize its business, including enhancements to its open outcry and electronic trading platforms and significant new technology to support electronic trading of its flagship Eurodollar contract. "This summer, we are launching our 'Eagle Project' that will bring new electronic functionality to many of the complex strategies, such as calendar spreads, now used in trading Eurodollar contracts on our trading floor," he said. "We believe this enhancement will help maintain our leadership in Eurodollar futures, the world's most actively traded futures contract." Additional projects include upgrading and streamlining CME's electronic trading infrastructure to further increase stability and speed. McNulty said these efforts also will enable the exchange "to stay ahead of the curve in terms of the tremendous volume growth we have experienced."
McNulty said that since the beginning of 2002, CME has introduced swap futures and E-mini S&P MidCap 400ä Index futures contracts, expanded side-by-side open outcry and electronic trading to GSCIÒ futures and several livestock contracts, initiated around-the-clock trading of S&P/TOPIX 150ä Index futures with Tokyo Stock Exchange, launched CME E-quotesSM on the Internet, and announced plans to introduce NYMEX E-mini energy futures and 13 new foreign exchange contracts within the next several months. "We are committed to rekindling the spirit of innovation that has been CME's hallmark," he said.
CME Holdings is analyzing the industry's consolidation environment and completing a mergers and acquisitions readiness project, McNulty said. In the meantime, CME continues to implement strategic alliances and joint ventures that further its business goals, he said. CME is a joint venture partner in OneChicago, LLC, which expects to launch single stock futures and narrow-based indexes after the final regulatory and back-office hurdles are cleared for trading these products in the United States.
Gordon called on shareholders to continue to demonstrate courage and the ability to adapt. "Our tremendous success cannot lull us into complacency," he said. "…[I]t is our desire and willingness to continue dreaming, innovating and evolving that keeps us bold, strong and competitive."
Chicago Mercantile Exchange Holdings Inc. is the parent company of Chicago Mercantile Exchange Inc. (www.cme.com), the largest futures exchange in the United States based on trading volume, open interest and notional value. As an international marketplace, CME brings together buyers and sellers on its trading floors and GLOBEX around-the-clock electronic trading platform. CME offers futures contracts and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange and commodities. CME traded 411.7 million futures and options on futures contracts in 2001, with an underlying value of $293.9 trillion. The exchange moves about $1.5 billion per day in settlement payments and manages $28.2 billion in collateral deposits.
