CME Group Thrives on Technology Innovation
Two tyrants lord over the business technology team at CME Group, and they explain most of what you need to know about the exchange operator's Type A, Saturday-working, never-satisfied culture. One is volume. The other is speed.
CME Group operates the Chicago Mercantile Exchange, the world's largest derivatives exchange. In the past five years, CME's trading volume has grown more than 300 percent a year -- from 30 million orders a month in 2004 to 6.5 billion in October 2008, when the financial crisis hit its peak. In that same span, the average time for a quote or order to come into and back from CME's data center was collapsed from 180 milliseconds to less than 6 milliseconds. A blink takes about 300 milliseconds.
The Chicago Mercantile Exchange is a 111-year-old entity that in recent years acquired the Chicago Board of Trade and the New York Mercantile Exchange. In doing so, CME parlayed a pioneering role in electronic trading -- it introduced Globex, the first electronic futures trading platform, in 1992 -- and its once mundane-looking clearing operation into its top spot among derivative exchanges. "They were the upstart, underdog futures exchange 15 years ago, and now they own the world," says Larry Tabb, CEO of financial market research and advisory firm TABB Group.
And now they own the top spot in the 2009 InformationWeek 500, Wall Street & Technology sibling brand InformationWeek's annual ranking of the most innovative business technology organizations.
The company's success hinges on a technology team, 800-strong and led by CIO Kevin Kometer, that must live on the edge of emerging technology -- and even drive it, cajoling vendors such as Dell and Hewlett-Packard, AMD and Intel, and Cisco to build what might not look like mass-market products yet. "We're almost playing matchmaker," says John Hart, CME's managing director of technology engineering, about its relationship with vendors. Three years ago, for example, CME started work with Verizon and Tellabs to create a metro area Ethernet network that was more point-to-point, not looped, to get far more speed. That went live last year.
Yet until 2008 one of CME's most precious systems, the core futures trading platform that matches buyers and sellers, was far from leading-edge -- it was ultrareliable but shackled to a legacy system of 1 million lines of code, written for proprietary Sun Solaris servers. New features required long and costly testing, and hardware refreshes cost tens of millions of dollars.
So the IT team rewrote its core futures trading systems -- which handled contracts worth $1.2 quadrillion of notional value in 2008 -- in Java in six months and started migrating them to commodity Linux servers in January. The results: At a leaner 295,000 lines of code, the new platform cut response latency by 67 percent (by 5 milliseconds), and cut maintenance and capital expenses by 90 percent.
Platform for Growth
The company hopes to use its electronic platforms to seize new trading markets, including carbon credits through its Green Exchange joint venture and, in reaction to the financial crisis last fall, credit default swaps through its proposed CMDX partnership with hedge fund Citadel Investment Group. CME also is proving itself to be a partner of choice for foreign exchanges, from Brazil to Malaysia, that are looking to trade their products through Globex to reach more global investors.
Rick Redding, CME's managing director of products and services, notes that with an acquisition or partnership, IT teams are pulled in from the very earliest stages to assess if the economics work. But if it's an organic project that leverages CME's platform, IT's called in fairly late in the game. It's just a given that the infrastructure is in place to expand, he relates. "The IT team spends a lot of time in their cycle leveraging ahead of our needs," Redding explains.
And that's the way it has to be when a big spike in volume is 18 times an average day's volume. CME maintains enough capacity to handle two times the last known peak.
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