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Eric Millbrook
Garrett Tosh
Shafait Ali
Alexander Kramer
Turki Alsheikh

STRATEGIC RECOMMENDATIONS FOR THE CME GROUP

SECTION I: OVERVIEW
I-A. CME Group
The Chicago Mercantile Exchange Group (CME Group) is an American financial and commodity
derivative exchange headquartered in Chicago. The Chicago Butter and Egg Board, an
agricultural commodities exchange formed in 1898, became the CME in 1919. The company
formerly known as Chicago Mercantile Exchange Holdings Inc. changed its name to CME Group
Inc. in July 2007 with the merging of the Chicago Board of Trade (CBOT) and the Kansas City
Board of Trade (KCBOT). On August 18, 2008, shareholders of CME Group Inc. approved a
merger with the New York Mercantile Exchange (NYMEX) and COMEX. The Merc, CBOT,
NYMEX and COMEX are now markets owned by the CME Group. CME Group serves
professional traders, financial institutions, institutional and individual investors, major
corporations, manufacturers, farmers, producers, governments, and central banks.(1)

I-B. Principal industry (industries) in which the Company competes. CME Group Inc.,
through its subsidiaries, operates contract markets for the trading of futures and options on futures
contracts worldwide. It offers a range of products for trading and/or clearing across various asset
classes, based on interest rates, equity indexes, foreign exchange, energy, agricultural
commodities, metals, weather, and real estate. Its products include:
Trade executions through its electronic trading platforms, open outcry, and privately
negotiated transactions
Hosting, connectivity, and customer support for electronic trading through its co-location
services
Clearing and settlement services for exchange-traded contracts, as well as for cleared
over-the-counter derivatives transactions
Regulatory reporting solutions for market participants through global repository services
in the United States and the United Kingdom
Various market data services, including live quotes, delayed quotes, market reports, and
historical data service. CME owns 90% of Dow Jones' index business, including the
Dow Jones Industrial Average. (2)

NAICS CODES:
522320 - Financial Transactions Processing, Reserve, and Clearinghouse Activities
523120 - Securities Brokerage
523130 - Commodity Contracts Dealing
523210 - Securities and Commodity Exchanges
SIC CODES:
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6211 - Security brokers and dealers
6221 - Commodity contracts brokers, dealers
6231 - Security and commodity exchanges (3)

I-C. Principal products/services provided by the Company.
Exchange
CME Group acts as an intermediary between parties wanting to hedge risks, or speculate on
future market direction. CME Group exchanges offer 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. CME Group brings buyers and sellers together through the CME Globex electronic trading
platform and trading facilities in New York and Chicago. (4)

Clearing House
The CME Group clearing house clears, settles and guarantees every contract traded through CME
Group, including subsidiary exchanges such as the Chicago Board of Trade and the New York
Mercantile Exchange. Clients who buy and sell futures contracts on a futures exchange do not
buy and sell directly to one another; they actually buy contracts from and sell to a clearing house,
which stands in between all trades to ensure that the obligations involved in the trades are made
good.
By serving as the buyer to every seller and the seller to every buyer, the clearing house
virtually eliminates credit risk for each market participant. (5)

Interest Rate Products
The Companys interest rate products enable banks and other financial institutions worldwide to
hedge interest rate risks, which is the chance that an unexpected change in interest rates will
negatively affect the value of an investment. CMEs interest rate products allow the Companys
customers to execute transactions across the entire United States dollar-denominated yield curve.
Customers may manage short-, medium- and long-term interest rate risk using CME Group
products based on Eurodollars, United States Treasuries, swaps and other dollar-related
instruments. (6)

Equity Products
CME Group is the world's leading marketplace for equity index futures and options, offering
trading on key benchmarks including the S&P 500, NASDAQ-100, Dow Jones Industrial
Average, Nikkei 225 and CNX Nifty indexes. (7)

Foreign Exchange Products
CME Group offers approximately 40 foreign exchange futures and approximately 30 foreign
exchange options on futures products, covering an array of emerging market currency pairs in
more than 20 different currencies, including the markets they have recently entered. Its foreign
exchange products provide the tools and resources to hedge foreign exchange risk (The risk of an
investment's value changing due to changes in currency exchange rates), facilitating cross-border
trade and commerce while mitigating the risks to profitability due to fluctuations in the foreign
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exchange market. Its foreign exchange market attracts both buy- and sell-side investors, including
commercial and investment banks, hedge funds, commodity trading advisors, trading firms and
individual investors. (8)

Commodity Products
CME Group offers the widest range of agricultural commodity futures and options available on
any U.S. exchange. Its agricultural contracts include grains, oilseeds, livestock, dairy products,
lumber, coffee, sugar, cocoa and other products. (9)
The Company offers liquid energy complex, which includes Light Sweet Crude Oil
(WTI), Natural Gas (Henry Hub), and electricity products. During 2009, it launched over 300
new energy products on CME ClearPort. (10)
The Companys metals futures markets include full-size contracts on gold, silver,
platinum, palladium, copper and steel; as well as E-mini contracts for gold, silver and copper.
(11)

Market Data and Information Products
CME Groups markets generate information regarding prices and trading activity in its products.
The Company sells its market data, which includes information about bids, offers, trades and
trade size in its products, to banks, broker-dealers, pension funds, investment companies, mutual
funds, insurance companies, individual investors and other financial services companies or
organizations that use its markets or monitor general economic conditions. (12)

I-D . Principal competitors in each industry (4-6 competitors).
(1) NASDAQ OMX (the major competitor in most of products offered by CME across all
markets)
The NASDAQ OMX Group, Inc. delivers trading, clearing, exchange technology, regulatory,
securities listing, and public company services worldwide, and provides approximately 21,000
indexes. It operates in four segments: Market Services, Listing Services, Information Services,
and Technology Solutions. The company offers:
Trading on various exchanges and facilities across asset classes, such as derivatives, cash
equities, debt, commodities, structured products, and exchange traded funds
Market data and technology products, financial indexes, trade reporting and trade
comparison services, including surveillance and information dissemination to exchanges,
regulators, and brokers worldwide
Clearing, settlement, and central depository services through its investment firm
Facility management integration, surveillance solutions, and advisory services
Development and licenses for NASDAQ OMX branded indexes, associated derivatives,
and financial products
Technology solutions to approximately 70 exchanges, clearing organizations, and central
securities depositories in approximately 50 countries (13)
(2) Deutsche Brse AG (second major global competitor in most of services provided by
CME)
Deutsche Brse Aktiengesellschaft operates as an exchange organization in Europe, the
Americas, and the Asia-Pacific. Its activities cover:
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Securities and derivatives trading, clearing, settlement and custody services for 53
markets worldwide, and development and operation of electronic trading systems
Listing, trading, and clearing services for international issuers, intermediaries, and
investors in the cash market, fixed-income securities, ETFs, commodities, notes, actively
managed mutual funds, certificates and warrants, through its Xetra segment
Post-trade infrastructure for bonds, equities, investment funds, and other asset classes
through its Clearstream segment
Real-time trading data and other market moving signals for investors, brokers, trading
desks, and algo traders; instrument reference data for risk management, compliance
activities and services for middle and back offices of financial institutions; and IT
services to support or facilitate business processes through its Market Data + Services
segment. (14)

(3) IntercontinentalExchange, Inc. (competing in exchange and commodity contracts and
clearing services across US and global markets)
IntercontinentalExchange Group, Inc. operates
Networks of 17 regulated exchanges and clearing houses for financial and commodity
markets in the United States, the United Kingdom, Continental Europe, and Canada
Marketplaces for trading and clearing a range of securities and derivatives contracts
across various asset classes, including interest rates, equities, equity derivatives, credit
derivatives, bonds, currency, and commodities
Trade execution, listing services, price discovery, trade processing, clearing, post-trade
processing, and market data services.

(4) London Stock Exchange Group plc (competing in global exchange, clearing services and
market data and information products)
London Stock Exchange Group plc, together with its subsidiaries, provides:
Admission of securities to trading
Delivery and operation of trading systems
Clearing and settlement of trading in securities
Organization and regulation of markets in securities
Provisions of investment support tools, real time data and other information products and
technology services
The London Stock Exchange; Borsa Italiana; MTS, Europe s fixed income market;
Turquoise, a UK and Russian derivatives trading; and pan-European lit and dark equity
trading markets.

(5) TMX group Inc.(competing in exchange, clearing and market data and information
products globally)
TMX Group Limited operates:
Cash, foreign exchange, commodities, and derivatives markets for various assets classes
in Canada, the United States, and internationally
The Toronto Stock Exchange and TSX Exchange, national stock exchanges for senior
equity and public venture equity markets, as well as securities and information.
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I-E. Market share of the Company and each of the above noted competitors


I-F. Industry Trend: Is the industry growing/expanding, stable, or shrinking?
The futures, derivatives, and commodities markets appear to be approaching maturity, against a
background of rising and uncertain prices for many core commodities in food and industrial
materials. Margins erode as competitive intensity, price transparency and the capital requirements
of the business all increase while the access to inexpensive financing and market volatility
decrease. Imminent regulatory changes will lead to rising complexity costs and further
toughening of the financing environment.
Three dominant trends will reduce the growth of global commodity trading over the next
two or three years:
1. Increasing competitive pressure and customer sophistication will likely lead to further
erosion of the profitability of core trading operations
2. Capital values will likely increase substantially, given high commodity prices and an
increasing need to invest in physical assets
3. Waves of regulatory change in the banking and derivatives-trading environment will
further drive up financing and transaction costs while also creating new business
opportunities for physical players as banks scale down their own commodity trading
activities. Regulator arbitrage opportunities are unlikely across the large trading hubs.(15)
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I-G. Challenges: List the 2-3 major issues/challenges facing the industry.
CME Group faces many challenges in the near future, some already mentioned. These include:
1. Further regulations by the CFTC and SEC;
2. Decline in market share from competitor platforms;
3. Declining profit margins on electronic trading platforms.

I-H. Opportunities: Identify the 2-3 potential opportunities for this industry.
Despite the maturity of the futures, derivatives, and commodities markets, several opportunities have
arisen of which CME Group could take advantage. These include:
1. New financial vehicles trading in markets;
2. Greater reliance on technology to enact trades and provide financial service;
3. Creating platforms for other exchanges, and moving from a clearing house, specifically, to an
Infrastructure-as-a-Service Exchange.

SECTION II: FINANCIAL ANALYSIS
II-A. Gross Revenue of the CME Group inc.
Year 2011 2012 2013
Revenues(US Dollars) 3,280.6 (millions) 2,914.6 (millions) 2,936.3 (millions)

II-B. Gross Revenue of the total industry.
Estimated Gross Revenue of the total industry, worldwide, in 2013: 14,886.01 (Millions in U.S. Dollars)



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II-C. Gross Revenue for the 4-6 major competitors of the Company

NASDAQ OMX Group
CME Group
Deutsche Borse AG
Intercontinentalexchange
London Stock Exchange

II-D. Profit Margins for the Company and primary competitors.
2011 2012 2013
CME Group Inc. 55.2% 30.8% 33.3%
NASDAQ OMX
Group
11.3% 11.3% 12%
Deutsche Brse AG 36.8% 33.4% 21.75%
IntercontinentalExcha
nge, Inc.
38.4% 40.5% 15.17%
London Stock
Exchange Group plc
22.5% 64.1% 29.9%
TMX group Inc 35.3% 34.2% 18.8%


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II-E. Trend: Chart the Companys revenue, profits and stock price reported for the previous 36
months.


SECTION III: BASES OF COMPETITION:
III-A. Principal bases on which firms in this industry compete
Product:
Part of CME Groups appeal with their Globex system is the time utility that the system offers to
customers. In order appeal to a global market, CME Groups Globex system offers trading 23 hours a day
for five days a week. This allows CME Group to market to customers in every country and different time
zones. This is crucial for any company competing in international finance as markets open and close at
different times. CME Group has further improved the time utility of their system by reducing transaction
time to 5.5 milliseconds. (Kuller, 2014)
Promotion:
As a company that offers risk management services, CME Group does not use sales promotion or direct
marketing like many companies that sell goods. Most of CME Groups advertising is in the form of
public relations releases that raise awareness of the company and create a positive public image. CME
Group has a YouTube channel filled with videos about community events, like supporting 4-H groups at
local fairs in the midwest, and student awards that they give out. These videos are examples of
controllable public relations material that CME Group can publish to foster a positive public image of the
company. Because CME Group can control video content, they can ensure these materials enhance public
opinion of the company. (How The World Advances, 2012)
Price:
CME group generates revenues by charging commissions for transactions placed through the Globex
system. These fees can vary based on several factors including: whether or not the customer has a legacy
CME or legacy CBOT clearing membership or exchange membership, the product traded, the volume
traded, and the location where the product is traded. For example, according to CME Groups new 2014
trading fees, The non-member treasury futures exchange fee for CME Globex trades and non-member
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treasury options exchange fees for open outcry trades increase from $0.50 to $0.54. (Transaction Fee
Changes, 2014).
Place:
Another one of CME Groups most marketable benefits to the consumer is the place utility, form utility,
and flexibility of their Globex system. This system is accessible from anywhere in the world and has been
developed with an open architecture to allow trading through several applications. According to their
company website, CME Groups Globex system can be accessed by a broker, data center, proprietary
trading group, trading arcade, or clearing firm and also gives customers the options of developing their
own application or licensing one from a third party.
By designing the Globex system with an open architecture, CME Group has effectively
distributed their product to the entire global market. CME Groups potential customer base is not limited
by software or compatibility constraints
III-B. Competitive Advantages of the Company and principal competitors
Ingenuity and innovation stand together as one of the four key values to the Company, and one of its
competitive advantages. While NASDAQ OMX can boast about US tech firm contracts, CME Group
maintains and continually updates the most robust and compatible trading platform in the world. In 2012,
CME group updated the Globex platform to enable unheard of 5.5 millisecond transaction timing,
enabling increased opportunity for arbitrage and margin gains from tech savvy investors. This
functionality increases demand for its products and services, over slower platforms. (Kuller, 2014)
CME Groups ability to work with other companies must stand as its second greatest competitive
advantage. It locked mergers and acquisitions with all the key derivatives and futures firms in the US,
then established itself internationally in Europe, Asia, and South America, all in less than a decade. Its
collaboration with Dow Jones and joint venture with Standard & Poors prove CME Groups capabilities
in providing mutually beneficial solutions. (CME Group 10-K, 2013)

III-C. Role of technology and intellectual property in this industry
Technology plays a tremendous role in this industry. Todays market relies on algorithmic trading and
instantaneous transactions. Information Technology provides real-time data cultivation of the markets.
Security technology, cyber security, and network security provide buffers against new and pervasive risk
threats. A company selling risk management could not hope to offer proper hedging of risk while data sat
unprotected and unauthorized users stole data and fabricated transactions. (Pugel, 2011)

SECTION IV: LOGISTICAL MANAGEMENT and VALUE CHAIN
IV-A. Mission of the Company.
CME Group has foregone a traditional Mission Statement in favor of four Company Values upon which
its corporate culture is based.
1. We lead with conviction and integrity. Lasting gain, strive for excellence, and empowerment.
2. We advance the global economy. Manage risk to grow client businesses, provide risk management
products to expand and grow, and advocacy for the industry and its participants.
3. We build lasting relationships. Seeing from customer perspectives to offer what they need, staying
connected with partners, and incorporating unique perspectives into the work.
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4. We act with ingenuity every day. Champion innovation by taking calculated risks, ask hard
questions to think up big ideas, and anticipate customer needs to move swiftly to meet them.
(Company Values, 2014)

IV-B. Core Competency(ies) of the Company.
First, the electronic clearing house Globex handles the majority of all trade types for CME Group.
Globex lets CME Group offer markets 24 hours a day, all year round, to the entire world at once. This
economy of scale takes advantage of differing time zones by providing the same experience on the same
hardware, software, and servers to every customer. For example, customers on the Dubai Mercantile
Exchange can trade without bandwidth competition from customers in Kansas City, because they would
trade during each markets respective night. Having one system for every customer in every market can
produce regulatory concerns, but offering one, Global product distribution channel allows CME Group to
easily acclimate to new markets, as it has done in Brazil and the United Arab Emirates. (Form 10-K,
2013)

Second, CME Group includes IT professionals as one of its core competencies, employing nearly
one third of their workforce in programmers, system administrators, data control teams and many others
in 2013. This shows a commitment to their future as an electronic medium for exchange, and their
dedication to innovative designs. CME Group seems to believe that innovation, customer focused
initiatives, and service based offerings lead to future success, and electronic exchange will be the vehicle
to that success. (The 2014 Trading Technology 40, January 2014)

Third, CME Group has shown itself to be an excellent cooperator with complementary firms and
competition alike. The Chicago Mercantile Exchange has acquired nearly all the United States Market
Share in derivatives markets through the acquisitions of other firms such as CBOT, NYMEX, and
COMEX. But they did not stop there. They also set up partnerships with complementary firms like the
Dow Jones and Standard & Poors to improve financial exchange through an informed client base, and
even set up exclusive equity index futures contracts with its largest currenct competitor, NASDAQ OMX.
(Form 10-K, 2013)

IV-C. Inbound (Upstream) logistics and Supplier dependencies.
CME Group has vertically integrated their Information Technology, employing over of their workforce
there. (Kuller, 2014) Servers, IT professionals, and developers are all in-house.

IV-D. Outbound (Downstream) logistics and principal Distribution Channels of the Company.
CME Group provides a stage upon which buyers and sellers come together. Their distribution channels
encompass investors and traders across the world, through their many exchanges.
Several Companies utilize CME Groups infrastructure to deal in derivatives and commodities
trading. Algo Advantage, for example, offers strictly electronic trading and clearing using CME Groups
systems, shared at the Aurora, IL Data Center. They have direct links to Globex, allowing them to enact
extremely fast, algorithm based transactions to offer them a competitive advantage over other small
competitors. This offers CME Group revenues from fees offered by third party distributors of trading.
(Advantage Futures, 2014)

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I V-E. Comment on the extent to which the Company uses each of the following:
1. Vertical I ntegration Again, all of CME Groups IT is in-house, as well as its administrative
functions and data consolidation.
2. Outsourcing Currently outsources analysis services to S&P under their joint venture,
3. Offshoring CME Group plans to conduct business on the ground in London, but will work
remotely for the rest of its international partnerships for the near future. (Form 10-K)

SECTION V: MARKETS and MARKETING
V-A. Primary Geographical Markets
To expand the scope of their operations, CME Group has made many recent moves through joint ventures
and greenfield investments to build market share in the futures and derivatives exchange market. A 2012
move to create a joint venture with McGraw Hill provided CME Group with and index services partner,
S&P/DJI, to continue international expansion.
Outside of their operations in the United States, CME Group has started to expand internationally
to have more of a presence in the Euro zone. In 2011 CME Group launched their subsidiary, CME
Clearing Europe (2012 Annual Report, 2013). Along with CME Marketing Europe and CME Europe
Limited, these subsidiaries expand the geographic scope of CME Groups operations to new markets.
CME Group also applied to the United Kingdoms Financial Services Authority (FSA) in
September 2012 to build a derivatives exchange in London. This move has allowed CME Group to begin
trading foreign exchange derivatives and futures in Europe. All of these moves have served to build more
of a global presence for CME Group.
V-B. Marketing Strategies
In their 2012 annual report, CME Group cites concerns over their competition, providing insights into
their global marketing strategies moving forward. Specifically, CME Group states that they are wary of
other companies forming joint ventures or making acquisitions in order to take market share from CME
Group. These strategic alliances could provide one of CME Groups competitors with a comparative
advantage in financial, marketing, technological and personnel resources or allow them to develop
more preferable products (2012 Annual Report, 2013).
CME Group is especially concerned with competitors implementing penetration pricing models
that allow them to take away market share from CME Group. In their 2012 annual report, CME Group
states that In recent years, some of our competitors have engaged in aggressive pricing strategies,
including lowering the fees that they charge (2012 Annual Report, 2013). In order to compete with
companies using penetration pricing, CME Group will need to trim the fat off of their operations and may
need to engage in some price skimming in order to prepare for competitors aggressively slashing prices.
By skimming, or charging more initially in order to cover research and development expenses and then
lowering prices over time, CME Group can earn profits today off of their Globex platform to sustain
themselves once prices are driven down by competition. This will allow them to outlast competitors if
prices are artificially driven too-low to sustain business.
In order to address these concerns, CME Group will need to build a more flexible and efficient
corporate structure. CME Group also cites expanding their trade execution centers and overseas customer
base as strategic imperatives to remaining competitive in the industry.
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V-C. Product Life Cycles
CME Groups main product, the Globex system was first introduced in 1992 and continues to operate
today. While the Globex system has reached the maturity stage of its product lifecycle, CME Group has
kept their product fresh by updating and re-inventing their system. For example, in response to increased
Eurodollar trading on the Globex system in 2004, CME Group implemented performance upgrades to the
platform in order to reduce electronic response times (CME Announces, 2004). Along with this update,
CME Group also enhanced Eurodollar Options on GLOBEX to adapt to changing trends in the futures
and derivatives marketplace.
Innovations like these have kept the Globex system fresh and relevant as a trading platform and
have extended the product life cycle of the Globex system. Instead of allowing Globex to move from the
maturity stage to the decline stage of the product lifecycle, CME Group has continued to innovate and
refresh the system to keep up with the evolution of the industry. This reinvention processes it critical to
the continued success and competitiveness of the Globex platform.

SECTION VI: STRATEGIC ANALYSIS
VI-A. Comment on the extent to which the Company utilizes each of the following strategies:
1. Horizontal Integration
CME Group has engaged in vast Horizontal Integration over the last decade, cornering the US market in
derivatives, money market transactions, and commodities futures. They have acquired the CBOT,
NYMEX, and COMEX, to name a few, and continue to branch out to exchanges internationally, from
London and Brazil to Dubai and Hong Kong. In the summer of 2012, CME group acquired Pivot Inc. for
an undisclosed amount of money. According to CMEs website, the partnership will result in significant
benefits to traders in ways such as, Greater efficiency from straight-through processing of transactions,
reduced costs due to reduction of administrative efforts, ability to manage increased trade volume, and
access to the full benefits and financial safeguards of CME Groups central counterparty clearing. (Pivot
Instant Markets, 2014)

2. Related Diversification
A company achieves related diversification when they move into product lines within the same industry.
As mentioned above, CME Group has merged with and/or acquired NYMEX, KCMEX, COMEX, and
CBOT, and they have begun joint ventures with Dow Jones and S&P to provide index data services. In
addition, CME is forming a strategic alliance with the company 6fusion who specializes in the
standardizing of economic measurement of IT infrastructure and enabling a global marketplace for buyers
and sellers.

3. Unrelated Diversification
While most of CME Groups profits come from trading and clearing, it should be noted that the
information systems and analytical assessments derived from their partnership with Standard & Poors
offer similar, but different, opportunities, perhaps outside the derivatives and futures markets. As
financial instruments become more complicated, and new vehicles like crypto-currency and meta-
derivatives enter the mainstream trading environment, analytics and assessment will become paramount
for experienced investors to make sense of it all. CME Group has established an opportunity to, not only
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educate investors in these new vehicles, but expand trading into them with the calculated risk described
in their vision statements. They will be able capitalize on these innovations with more knowledge and
understanding, and diversify their offerings without undue exposure.

4. Strategic Alliances/J oint Ventures
CME group has been forming Joint Ventures alliances all over the world in places such as London,
Dubai, and Brazil as a way of strengthening their brand and their competitiveness.. CME has entered a
joint venture with Citadel Investment Group to offer a clearing service. CME has offered shares to
leading investment firms such as AllianceBernstein, Blackrock, and BlueMountain Capital Management
to facilitate the CDS transactions with the benefit of central counterparty clearing. (CME redefines
CDS, 2009) The CDS (credit-default swap) was invented by JPMorgan Chase as a way for investors to
protect themselves against loan default risk. The two companies formed the company CMDX that serves
as a platform for CDS trading that is integrated into CME Clearing. (Group, 2014) CMDX provides an
open architecture electronic trading, trade booking, affirmation and migration utility platform for credit
default swaps. (Group, 2014)

SECTION VII: STRATEGIC RECOMMENDATIONS

VII-A. Strategic Imperatives: Identify any imperatives critical to the Companys survival in the
next 36-60 months.
CME Groups strategic imperatives, pulled from their value statements, can be boiled down to two things.
First, CME must anticipate customer needs and move swiftly to meet them, under their fourth,
ingenuity value. Over the past two decades, commodities and futures exchange has transitioned from
almost entirely open call to electronic. Following its clients movements online, CME Group now
garners around 75% of its annual revenue from electronic trade fees. (Form 10-K, 2013) This shift toward
dominant technology helped it outperform and eventually acquire all the other commodities and futures
exchanges in the US. Electronic, microsecond timed trading allows for foreign exchange traders to
instantly hedge their risk of foreign currency exchange rate shifts without the delay that could spell
significant losses. (Pugel, 2011) Continued innovation, tempered by the needs and desires of their clients
and creating efficiencies, is essential for continued growth.
Second, CME must stay connected with partners, under the lasting relationships value. The
CFTC in the US, the China Securities Regulatory Commission, and the Federal Financial Supervisory
Authority in Germany all regulate commodities futures and other financial instruments, making entrance
into their markets difficult and expensive. CME Group has broken walls such as these through diplomatic
engagements with foreign powers, both financial and governmental, to immerse itself in markets
otherwise out of reach. These types of strategic alliances must continue, both current and new, for CME
Group to maintain a presence overseas. With technology prices falling every year, and hardware
capabilities rising, the overhead to implement and maintain a Globex or e-CBOT type of trading platform
dips within reach of more and more people and firms. But the relationship building skills CME Group
has proven cannot be so easily reduced to obsolescence. Going forward, the ability to grow
internationally will not fall on the most technologically advanced, but to the most diplomatically inclined.

VI I -B. Strategic Recommendations
New Products to Reinvigorate a Slowing Market
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Commodities such as metals and agriculture have been produced for thousands of years, and will likely be
produced for many more. But the competition between exchange firms continues to reduce profit margins
for established commodities. New or proprietary products, however, would allow CME Group to offer
products its competitors could not.
CME is attempting to commoditize IT infrastructure with the company 6fusion who specializes in
the standardizing of economic measurement of IT infrastructure and enabling a global marketplace for
buyers and sellers. The companies have signed a letter of intent to try and develop an Infrastructure-as-a-
Service Exchange. CME Group Chief Operating Officer said, As a leader in derivative markets, CME
Group is pleased to work with 6fusion to explore the idea of a new electronic marketplace for trading spot
and derivative financial products based on the WAC. (6fusion, 2013) 6fusions Workload Allocation
Cube, and is the only patented product in the world that measures IT infrastructure usage. This allows for
a common language of IT resourcing across physical, virtual, public, or private infrastructure regardless
of location, underlying technology, or management. (6fusion, 2014) Based on 6fusions innovation, the
companies are working to build an over the counter derivatives market for cloud computing.
6Fusions proprietary product, alongside an exclusive trading contract, could begin a revolution
of product offerings on exchanges around the world. Cryptocurrency, meta-derivatives, all the fringe
financial instruments could be brought into the light by the expert hands of CME Group. I would likely
take at least a couple years to build the legal framework to deal with these new offerings, and between
three and five years to cultivate the regulatory agencies to permit reasonable profits.

Trading Without Borders - the Clearport Trading App
CME Group offers a mobile app with data on products, tutorials for beginners, and other minor features,
but no actual trading. This needs to stop. The more technology dominates the exchange industry, the
more technology pushes the people behind it to perform. What once only required a long day of yelling
over other brokers to get buys and sells now demands up-to-the-millisecond data on value fluctuations
and trade speeds no human could attempt. Algorithms and meta-programs now perform most of the daily
activity, eliminating arbitrage and leaving major decisions to the professionals.
So why should one of those professionals need to be in the office to trade? Enter the Clearport
Trading App, the most advanced derivative, future, commodity, and security application to ever hit smart
phones. In the modern trading environment, humans cannot expect to keep up with computers, but they
still need to make the real decisions faster than their contemporaries.
This development would immediately render the open-outcry markets in Chicago and New York
obsolete, and CME Group could start repurposing them to house the infrastructure it would need to build
its Infrastructure-as-a-Service initiative. Over-the-counter services would run through the app as well,
shifting the entirety of CME Groups current offerings online.

Infrastructure-as-a-Service
CME Group has established as one of its competitive advantages its Globex system for exchange. We
believe that this platform can be scaled up, due to its compatibility and processing power, to provide an
exchange platform to the world. This would be called Infrastructure-as-a-Service.
But from here, CME Group could take its new, innovative product, and sell it directly. Having
created a new commodity from IT, the Company is in a unique position to sell that service to other
exchanges by the products on its own exchanges. Imagine the NYSE working electronically over CME
Group hardware, the Hong Kong Exchanges and Clearing, Ltd operating as it always has, but on the
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Globex system of the future. Like Microsoft provided the computing platform for the world for the past
25 years, CME Group will provide the trading platform for the world in the future. It would take several
years for CME Group to upscale their operations to handle the entire world, but offering its infrastructure
through licensing and fees to other exchanges, CME Group could focus on its most profitable advantage:
high tech trading.
An ambidextrous setup would allow CME Group to continue to derive revenue from its normal
offerings, but setup the CME Group of the future.

The Amazon of Trading
Amazon.com now offers a virtually limitless variety of products. For CME Group to reach its goal as the
trading platform for everything in the 21st century, it will need to learn and practice with financial
instruments it may not have dealt with before. The new products notwithstanding, standard equity trading
and bond markets may offer new challenges with which the Futures division of CME Group will need to
acclimate itself. There should not exist a single intangible asset for which the CME Group cannot provide
service. The Amazon of Trading initiative will be the culmination of each strategic recommendation.

By offering new products, CME Group will further establish its competitive edge in existing
business, and by creating new, more robust trading platforms, it can build toward a future where every
investor, broker, or trader that needs to make a transaction will look to a myriad of firms offering their
own services, all on the back of CME Group architecture and platforming.


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