The Chicago Board of Trade Building, a magnificent Art Deco edifice that stands at the south end of LaSalle Street in downtown Chicago, looks like a temple to agriculture.
Figures,PA3450U-1BRS, are carved in relief on either side of the clock that hangs over the front entrance: on the left, a Mesopotamian farmer holds a sheaf of wheat; on the right, an indigenous Mexican clutches stalks of corn. Thousands of interior details are based on representations of crops growing. A 31-foot-tall statue of Ceres, the Roman goddess of grain, crowns the building.
The designs,FPCBP155, reflect the importance of agriculture in the development of Chicago. Since the mid-19th century, the Windy City has thrived as a hub for trading the produce grown on the vast plains of the US Midwest prairie.
These days, the CBOT Building is home to the largest financial trading floor in the world, where derivative contracts – futures and options – are traded on a huge range of underlying assets,FPCBP159, from the old faithfuls of corn and wheat to relative newcomers such as interest rates and currencies.
The vitality and noise these “open outcry” trading pits generate is impressive, but it masks the slow death of traditional ways of trading: almost 90 per cent of the market has become electronic,FPCBP160. The size of the floor – with its octagonal pits, each a mini-amphitheatre – reflects the 2007 purchase of the CBOT by the Chicago Mercantile Exchange (CME), its younger rival, which quickly consolidated the two exchanges’ trading floors.
Whether on the screen or on the floor, commodity trading has long been eclipsed by the market for financial products. Agricultural products,FPCBP102, were the foundation of both the CBOT – which launched in 1848 with grain trading – and the Merc, as the CME was universally known, which started as the Chicago Butter and Egg Board in 1898.
In a flurry of innovation in the 1970s, the two exchanges developed a brand-new asset class: financial futures. Between them, they invented futures on currencies, interest rates, Eurodollars and stock indices – products that now account for 80 per cent of the volume at the CME.
The Merc was at the forefront of this trend. It launched currency futures – the first successful financial future – in 1972, and grew rapidly by developing its suite of financial products,FPCBP123, to the point that agricultural commodities speedily diminished in importance to the exchange.
Yet commodities reasserted their significance for the CME Group, as the company renamed itself, with its $11.6bn (£7.3bn, €8.8bn) acquisition of the CBOT, and its $7.6bn purchase of the New York Mercantile Exchange (Nymex) in 2008. With each merger, it secured iconic suites of commodity products,42T5209, – grain contracts at the CBOT, energy and metals at Nymex – that now form the backbone of the group’s commodity offering.
While commodities account for roughly a fifth of the CME’s trading volumes, they provide a third of its total revenues, since the rates traders pay to use them are on average higher than those for financial products.
The listed energy products that came with Nymex are the most significant in terms of volume.
