COMMODITY EXCHANGES



Commodity Exchanges 700
Photo by: Paul Fleet

Commodity exchanges, or futures exchanges, are, like stock exchanges, membership organizations. Their mission is to provide a suitable place where members trade commodities (futures) or options on futures in a controlled, orderly manner. The exchange itself is not a principal to any futures transaction, nor does it trade for its own account. Except for developing, publishing, and enforcing trading rules, including the establishment of daily price limits to ensure fair and equal treatment for all market participants, the exchange does nothing to determine prevailing prices in the market.

The first organized commodity exchange in the United States was the Chicago Board of Trade (CBOT), founded April 3, 1848. When first established, the CBOT was a centralized cash market formed in response to the need for a central marketplace that would bring together large numbers of buyers and sellers; thus providing liquidity, as well as bringing traders together in a place that provided rules for ethical trading practices and reliable standards of weights and measures. Soon after the founding of the exchange, grain brokers began trading in "cash forward contracts" in order to assure buyers a source of supply and sellers the opportunity to sell 12 months a year. As use of cash forward contracts escalated, futures contracts evolved.

Generally, membership on an exchange is individual, and only members may buy and sell futures and options on the exchange trading floor. Administration of the day-to-day operations of the exchange is handled by a paid staff. Members make the ultimate decisions, however, first by committee approval, then by passage by the board of directors or board of trustees. Administrative decisions are subject to full membership vote.

The heart of the exchange is the exchange trading floor, where a specific area, known as a pit or ring, is designated for the trading of each commodity. Bids (propositions to buy a specific quantity of a commodity at a stated price) and offers (propositions to sell a specific quantity of a commodity at a stated price) are made by open outcry. As each transaction is completed in the pit, a pit reporter records it; this information is immediately displayed on the trading floor quotation board and also appears on computer screens in brokerage offices and trading centers worldwide. Each trade is also recorded by the participating member on trading cards; each entry shows the amount bought or sold, with whom the trade was made, the price, and the trading bracket (time period) in which the trade was made. These cards enable each member to recheck his trades, as every trade must be resolved before the start of trading the following day.

The United States hosts five of world's largest top ten exchanges by number of contracts traded. The Chicago Board of Trade (CBOT) is the world's largest exchange, with over 281 million contracts traded in 1998,40 percent of which were futures on U.S. Treasury bonds. Other major U.S. exchanges include, in descending order by volume, the Chicago Mercantile Exchange (CME), the Chicago Board Options Exchange (CBOE), AMEX Commodities, and the New York Mercantile Exchange (NYMEX). The top two U.S. exchanges represent almost 80 percent of U.S. trading volume. Major international exchanges include the London International Financial Futures and Options Exchange (LIFFE), the world's second-largest; Brazil's Bolsa de Mercadorias & Futuros

Table 1a Selected World Commodity Exchanges
Table 1a
Selected World Commodity Exchanges

Argentina
Mercado de Futures y Opciones S.A. (MERFOX), Buenos Aires, 1991
Finland
Finnish Options Exchange, Ltd. (FOEX), Helsinki, 1986
Finnish Options Market, Helsinki, 1987
Helsinki Securities and Derivatives Exchange (HEX), Helsinki, 1997
Australia
The Australian Options Market, Sydney, 1976
Sydney Futures Exchange (SFE), Sydney, 1960
France
Marche a Terme International de France (MATIF), Paris, 1986
Marche des Options Negociables de Paris (MONEP). Paris, 1987
Austria
Austrian Futures and Options Exchange, Vienna, 1991
Germany
Deutsche Terminboerse (DTB), Frankfurt, 1988
Belgium
Belgian Futures and Options Exchange (BELFOX), Brussels, 1990
India
National Stock Exchange of India, Mumbai, 1993
Brazil
Bolsa de Mercadorias & Futuros (BM&F), Sao Paulo, 1991
Ireland
Irish Futures and Options Exchange (FOX), Dublin, 1988
Canada
Montreal Exchange (ME), Montreal, 1874
Toronto Futures Exchange (TFE), Toronto, 1983
Toronto Stock Exchange (TSE), Toronto, 1861
Vancouver Stock Exchange (VSE), Vancouver, 1907
Winnipeg Commodity Exchange (WCE), Winnipeg, 1887
Israel
Tel Aviv Stock Exchange Ltd. (TASE), Tel Aviv, 1953
Chile
Bolsa de Commercio de Santiago, Santiago, 1893
Italy
Mercato Italiano dei Derivati, Milan, 1994
Mercato Italiano dei Futures, Milan, 1992
China
Beijing Commodity Exchange, Beijing, 1993
China Commodity Futures Exchange of Hainan, Hainan, 1993
Hong Kong Futures Exchange Ltd. (HKFE), Hong Kong, 1976
Shanghai Metal Exchange (SHME), Shanghai, 1992
Japan
Kansai Commodities Exchange (KANEX), Osaka, 1997
Kobe Rubber Exchange (KRE), Kobe, 1951
Nagoya Stock Exchange (NSE), Nagoya, 1986
Nagoya Textile Exchange, Nagoya, 1951
Osaka Securities Exchange, Osaka, 1949
Osaka Textile Exchange, Osaka, 1984
Tokyo Commodity Exchange (TOCOM), Tokyo, 1984
Tokyo Grain Exchange (TGE), Tokyo, 1952
Denmark
Copenhagen Stock Exchange and Guarantee Fund for Danish
Options and Futures (FUTOP Market), Copenhagen, 1987

Table 1b Selected World Commodity Exchanges
Table 1b
Selected World Commodity Exchanges

Japan (continued)
Tokyo International Financial Futures Exchange (TIFFE), Tokyo, 1989
Tokyo Stock Exchange (TSE), Tokyo, 1949
Tokyo Sugar Exchange, Tokyo, 1952
Sweden
OM Stockholm AS, Stockholm, 1985
Malaysia
Commodity and Monetary Exchange of Malaysia (COMMEX), Kuala Lumpur, 1998
Switzerland
Swiss Options and Financial Futures Exchange AG (SOFFEX), Zurich, 1986
Netherlands
European Options Exchange (EOE-Optiebeurs), Amsterdam, 1978
Financiele Termijnmarkt Amsterdam N.V. (FTA), Amsterdam, 1987
Thailand
Stock Exchange of Thailand (SET), Bangkok, 1991
New Zealand
New Zealand Futures & Options Exchange Ltd. (NZFOE), Auckland, 1984
United Kingdom
International Petroleum Exchange of London Ltd. (IPE), London, 1981
London Futures and Options Exchange, London, 1987
London International Financial Futures and Options Exchange (LIFFE), London, 1982
London Metal Exchange (LME) London, 1876
OM London Ltd. (OML), London, 1989
Norway
Oslo Stock Exchange, Oslo, 1819
United States
American Stock Exchange (AMEX), New York, 1908
Chicago Board Options Exchange (CBOE), Chicago, 1973
Chicago Board of Trade (CBOT), Chicago, 1848
Chicago Mercantile Exchange (CME), Chicago, 1919
Coffee, Sugar, and Cocoa Exchange, Inc. (CSCE). New York, 1882
Commodity Exchange, Inc. (COMEX), Kansas City, 1933
Kansas City Board of Trade (KCBT), Kansas City, 1856
MidAmerica Commodity Exchange, Chicago, 1880
Minnesota Grain Exchange (MGE), Minneapolis, 1881
New York Cotton Exchange (NYCE), New York, 1870
New York Futures Exchange (NYFE), New York, 1890
New York Mercantile Exchange (NYMEX), New York, 1872
New York Stock Exchange (NYSE) Options, New York, 1983
Pacific Stock Exchange (PSE), San Francisco, 1882
Philadelphia Board of Trade, Philadelphia, 1985
Philadelphia Stock Exchange (PHLX), Philadelphia, 1790
Philippines
Manila International Futures Exchange Inc. (MIFE), Makati, 1984
Singapore
RAS Commodity Exchange, Singapore, 1991
Singapore International Monetary Exchange Ltd. (SIMEX),
South Africa
South African Futures Exchange (SAFEX), Johannesburg, 1988
South Korea
Korea Stock Exchange, Seoul, 1956
Spain
MEFF Renta Fija, Barcelona, 1990
MEFF Renta Variable, Madrid, 1988

(BM&F); Germany's Terminboerse (DTB); and the Marche a Terme International de France (MATIF). Table I lists selected worldwide futures and options exchanges by country with city and date established.

Commodity exchanges in the United States are regulated primarily under the Commodity Exchange Act of 1974, which established the Commodity Futures Trading Commission (CFTC). Exchanges must be authorized by the CFTC in order to operate and are subject to its regulatory oversight. In the late 1990s some members of Congress and senators attempted to dramatically curtail the CFTC's authority, particularly concerning large institutional traders, by amending the Commodity Exchange Act. However, those efforts failed amid fears that deregulation would lead to market instability and disruptive trading practices.

SEE ALSO : Commodities ; Foreign Exchange ; Futures/Futures Contracts ; Options/Options Contracts

FURTHER READING:

Chicago Board of Trade. About the Exchange. Chicago, 1999. Available from www.cbot.com/about-exchange/index.html .

Chicago Mercantile Exchange. "About the Exchange." Chicago, 199S. Available from www.cme.com/exchange/back.html .

Commodity Futures Trading Commission. Commodity Futures Trading Commission Annual Report. Washington, annual. Available from www.cftc.gov .

Futures Industry Institute. Futures and Options Fact Book. Washington, annual. Available from www.fiafii.org/factbook/ .



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