Chicago Mercantile Exchange Rebuttal

Group 7 AGEC 4433

Central Issue

• The group proposed that the central issue was to strive for growth in a consolidating market

• The case more specifically asks: – Where and how to expand– How to deal with regulatory changes from the

financial crisis in 2008

Alternatives

• 1st alternative: improved technology– Invest in increasing the speed of trades

• 2nd alternative: expanded locations– CME increasing involvement in international

markets• 3rd alternative: trading carbon credits – Developing a market for carbon credits

(POTENTIAL BLUE OCEAN, innovative)

Proposed Best Alternative

– Investment in technology improvement

– We agree that technology is important, but should be considered a supplementary tool that is constantly being improved

– The marginal benefit of investing in technology will eventually begin to increase at a decreasing rate it’ll help, but won’t necessarily spur as much growth as is being sought

– Upping the speed of technology may increase technical problems, with potentially low benefits

Suggested Alternative

• Expanding CME interaction in international markets

• Group 8 did not choose this alternative because :– Difficult to qualify success/failure– Inability to infiltrate government owned markets– Independent exchanges

Suggested Alternative (cont’d)

• Considering the reasons against this alternative, there are still many more opportunities for growth outside of the domestic market

• The case states that Asia and Latin America would be open to consolidation

• More importantly, CME should focus on creating more bi-lateral partnerships like the one with Brazil in other Latin American and Asian countries that would like to begin selling commodities in the U.S., so the U.S. can trade in their markets