3 Intro to CME GroupThe Chicago Board of Trade (CBOT) was established in 1848, and the Chicago Mercantile Exchange (CME) in 1898.Economic functionsHedging and risk managementPrice discoveryPrice disseminationThe world’s largest and most diverse exchangeAll transactions cleared, settled, and guaranteed by the CME Clearing HouseWorld’s largest100+ years of default free performanceVirtual 24 hour trading on the CME Globex® electronic trading platform
4 CME Group Market Environment Especially during periods of market turmoil, customers are concerned about:LiquidityCapital efficiencyAnonymityCounterparty riskCME Group has:a diverse multi-asset product baseInterest rateEquitiesForeign exchangeAgricultural commoditiesAlternative investmentsEnergy and metalsa broad customer baseCME Group provides an open-access model with instantaneous access to deep liquidity with low transaction cost.
5 Global Presence CME Globex live access from more than 80 countries 6 European/Asian hubsRegionally focused sales, education and marketing to key targetsBroadening relationships in emerging marketsCME provides access to highly liquid markets across all major asset classes on an industry leading technology platform.
6 CME Group ADV by Year (contracts in thousands) CME Group ADV by Quarter (contracts in thousands)Sep 07 up 35% vs. Sep 0611,13513,0004-Yr CAGR: 27%up 52%8,4766,8378,5305,48477%4,26520032004200520062007Q106Q206Q306Q406Q107Q207Q307to dateEx-PitOpen OutcryElectronic (CME Globex and e-CBOT)Q3 volume has not exceeded Q2 volume since 2002
8 Alternative Investments Product Line Standardized Weather:U.S. Weekly Monthly & Seasonal Weather (18 cities)European Monthly & Seasonal Weather (9 cities)Asian-Pacific Monthly & Seasonal Weather (2 cities)Canadian Monthly & Seasonal Weather (6 cities)Frost Day Monthly & SeasonalSnowfall & Seasonal Snowfall (2cities)Hurricane Seasonal, Seasonal Maximum based on Carvill Hurricane IndexReal Estate:Residential Housing, based on S&P/Case-Schiller Home Price IndicesDow Jones U.S. Real Estate Index FuturesEnergy:EthanolEthanol Forward Month Swaps (OTC)Ethanol Basis Swaps (OTC)
9 CME Group Weather - A Developing Market February 27Summer 1999September 26thMarch 8th/April 12thJuly 26thJune 20thCME launches firstexchange weather derivativesLaunch 10 new US seasonal cities & 12 new US monthly cities.Change contract size from $100 to $20Expand the Option strike rangeAdd 3 new US cities and 4 new European citiesLaunch Snowfall Contacts for New YorkAnd Boston19992003200420052006August 22, 2002Announce the LMM (Wolverine)October 3rdJune 14thLaunch of additional 5 US seasonal citiesTotal is 15 US Monthly/Seasonal citiesSeptember 23thOctober 16thLaunch 6 CanadianMonthly and SeasonalStrip ContractsLaunch five monthly and seasonal European citiesLaunch CME WeatherSeasonal Strips/ Frost contractsVolume24,094( )122,094867,681801,122Launched Hurricane/WeekliesYTD ADV 4,800 (April 6,400)
10 CME Group Weather – A Developing Market 2007 VolumeADV +21% over 2006; (October ADV is at 7,000)Screen trading has increased by 150%Increased Summer trading (CDD) by 26%Traded over 2.5 Million contracts since 2005New market participants up 23%RecordsSurpassed open interest in 2007Set daily record of over 29,000 in August2007 OI surpassed 490,000Increase of 10% over 2006Surpassed OI of Live Cattle, Lean Hogs and other “mature” productsMarket ParticipantsRe-Insurance, Hedge funds, Utilities, Power, Gas and other energy.
11 Benefits of CME Group Weather Derivatives Standardized contract specifications or flexible options (bespoke)Anonymous central counterparty clearingFrees up valuable counterparty credit linesSecured by CME Financial Safeguards systemCentralized price discovery & universal price disseminationStreamlined processing and allocationsDaily mark to market minimizes financial risksPositions are automatically nettedNo ISDA documentation requiredNo bilateral collateralsOffer a standard, transparent reference point for marking and valuing OTC positionsElectronic trading platform & other trading venuesImmediate execution, Increased transparency, Enhanced liquidityBroaden ProductsBroaden ParticipantsLink to CME Clearing
12 CME Group Managing Risk CME Group weather futures and options are used to manage many risk factors:MarginLiquidity riskSettlement riskMarket concentrationCredit (non-performance) riskDeal replacement riskContagion risk
13 Accurate Weather Data is Vitally Important 1Historical2Margins3Contract Settlements4Market Confidence
14 Contact Us John Harangody Director, Commodity ProductsFelix CarabelloDirector, Alternative Investments ProductsChristina HansonAssociate Director, Alternative Investments ProductsTony ZaccariaAssociate Director, Alternative Investments Products
15 CME Group Weather Derivatives Felix CarabelloDecember 5, 2007