Overview

Building on the heritage of its futures exchanges (CME, CBOT, NYMEX and COMEX), CME Group serves the risk management needs of customers around the globe. CME Group, formerly known as Chicago Mercantile Exchange Holdings Inc., was the first U.S. financial exchange to become publicly traded in December 2002. We completed our acquisition of CBOT in July 2007 and of NYMEX in August 2008.

Our customer base includes professional traders, financial institutions, institutional and individual investors, major corporations, manufacturers, producers and governments. We break our member customers into four segments based on trading activity: bank proprietary trading; large hedge funds; buy-side proprietary trading firms, and “other,” which includes thousands of smaller member firms and individual traders. We also have a fifth segment of customers, which is comprised of our non-member customers who pay higher fees than the member category.

Highly Liquid Markets

CME Group is the only exchange to offer access to all major asset classes from a single electronic trading platform and trading floors in Chicago and New York City. Specifically, we offer futures and options on futures based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, and alternative investment products such as weather and real estate. We provide the facilities to conduct open outcry and electronic trading and we match, clear and guarantee trades executed on our exchanges and certain bilateral trades executed off-exchange. Our markets provide an effective and transparent forum for our customers to manage their risk. We believe that our customers choose to trade on our centralized markets due to their liquidity and transparency and our central counterparty clearing guarantee. More than three quarters of our trading volume comes from trades made electronically on our CME Globex electronic trading platform. The combined volume of CME, CBOT and NYMEX in 2008 was approximately 3.0 billion contracts. As of December 31, 2008, our open interest stood at 63.0 million contracts and our open interest record was 86.1 million contracts set on September 11, 2008. Open interest is the number of outstanding contracts at the close of the trading day. Open interest can also be defined as the total number of futures contracts or options on futures contracts that have not yet been exercised, expired, or fulfilled by delivery. Open interest serves as an indicator of liquidity. Market liquidity, or the ability of a market to absorb the execution of large purchases or sales quickly and efficiently, is key to attracting customers and contributing to a market’s success. The open interest of CME and CBOT (excluding NYMEX) declined during 2008 by 33% from December 31, 2007. We believe the decline is due primarily to the instability of the financial markets, the decline in assets under management and the decrease in the availability of credit, which has resulted in many of our customers decreasing their risk exposure and trading activity on our markets. Our goal is to maintain quality product execution and service in support of our customers while they navigate through the current economic environment.

Most Diverse Product Line

We serve the risk-management needs of customers around the globe, offering the widest range of benchmark products available on any exchange and covering all major asset classes. Our products provide a means for hedging, speculation and asset allocation relating to the risks associated with, among other things, interest rate sensitive instruments, equity ownership, changes in the value of foreign currency and changes in the prices of commodities. These include products based on the entire U.S. interest rate yield curve, equity indexes, foreign exchange, agricultural commodities, energy, metals and alternative investment products.

Futures and options provide a way to protect against – and potentially profit from – price changes in financial instruments and physical commodities. Futures contracts are legally binding agreements to buy or sell something in the future, such as livestock or foreign currency. The buyer and seller of a futures contract agree on a price today for a product to be delivered and paid for in the future. Each contract specifies the quantity of the item and the time of delivery or payment. An option on a futures contract is a right, but not an obligation, to sell or buy a futures contract at a specified price on or before a certain expiration date.

Superior Trading Technology

Our CME Globex electronic trading platform is accessible virtually 24 hours a day throughout the trading week. Our platform offers:

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Customers benefit from direct connectivity, ongoing development efforts, a single source for customer support and highly efficient access to real-time market data. The platform is continuously enhanced to serve our customers’ needs for high-speed, high-volume capacity, improved options trading capabilities and a range of new products. In 2008, we were named a leading technology innovator for the fifth consecutive year by InformationWeek. We also completed server upgrades on our interest rate match engines to allow for enhanced trading strategies. CME Globex handled an average daily volume of 10.1 million contracts in 2008, with an all-time record of 20.5 million contracts on January 22, 2008 (representing volume of 13.2 million CME products, 6.1 million CBOT products and 1.2 million NYMEX products).

Global Reach

We offer a number of programs and products designed specifically to appeal to a global audience. Customers from all over the world trade our products, primarily electronically. As described below under “Growth Strategy—Globalizing the Business,” we continue to expand our business globally by educating non-U.S. customers on the benefits of our product suite and by entering into strategic alliances, such as our relationships with BM&F Bovespa (BM&F) and the Korean Exchange (KRX).

Financial Safeguards

We own our own clearing house – CME Clearing. Our integrated clearing function is designed to ensure the safety and soundness of our markets. CME Clearing protects the financial integrity of our markets by serving as the counterparty to every trade – becoming the buyer to each seller and the seller to each buyer – and limiting credit risk. It is responsible for settling trading accounts, clearing trades, collecting and maintaining performance bond funds, regulating delivery and reporting trading data. CME Clearing limits accumulation of debt from trading losses with twice daily mark-to-market settlement.

In 2008, tumultuous market conditions were driven by concerns about counterparty credit. During such times, our financial safeguards continued to provide our customers with transparency and liquidity in all asset classes. Despite the failure of a number of financial institutions in 2008, none of our customers incurred a financial loss due to a counterparty failure. We are extending the benefits of our model to the over-the-counter market through CME ClearPort, our internet-based system for clearing over-the-counter transactions. We also plan to provide clearing services for credit default swaps in connection with our proposed joint venture with Citadel Investment Group, L.L.C. (Citadel) as discussed below in the section entitled “Growth Strategy—Serving the Over-the-Counter Markets.” As of December 31, 2008, we acted as custodian for approximately $116.1 billion in performance bond, security deposit and other collateral of which $16.9 billion was in excess of the requirements. Performance bonds are deposits required from our clearing firms to ensure that they can cover potential losses in connection with their trading positions. We require these deposits as part of our financial safeguards to help ensure that clearing firms can meet their obligations to their customers and to CME Clearing.

Ownership of our clearing house also enables us to more quickly and efficiently bring new products to market through coordination of our clearing functions with our product development, technology, market regulation and other risk management activities.

History

CME was founded in 1898 as a not-for-profit corporation. In November 2000, CME demutualized and became a shareholder-owned corporation. As a consequence, we adopted a for-profit approach to our business, including strategic initiatives aimed at optimizing trading volume, efficiency and liquidity. In December 2002, CME Holdings completed its initial public offering of its Class A common stock and became the first U.S. financial exchange to be publicly traded. In July 2007, CME Holdings completed its merger with CBOT Holdings. As a result, we acquired CBOT. CBOT is a leading marketplace for trading agricultural and U.S. Treasury futures as well as options on futures. In August 2008, we merged with NYMEX Holdings and acquired NYMEX and COMEX, its wholly-owned subsidiary. On the NYMEX exchange, customers primarily trade energy futures and options contracts, including contracts for crude oil, natural gas, heating oil and gasoline. On COMEX, customers trade metals futures and options contracts, including contracts for gold, silver, copper and aluminum.

Our principal executive offices are located at 20 South Wacker Drive, Chicago, Illinois 60606, and our telephone number is 312-930-1000.

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Growth Strategy

Increased market awareness and acceptance of derivatives, increased price volatility, technological advances and the increasing need for counterparty risk mitigation and clearing services create significant opportunities for growth. We believe that we can capitalize on these trends and build on our competitive strengths by implementing the following strategies:

Growing the Core Business. We intend to advance our position as a leader in the futures industry by growing and diversifying our customer base and trading volumes. As part of this initiative, we plan to continue to generate organic growth through the launch of new products. We have a strong track record of innovation, continually launching new products and product line extensions.

We plan to continue to work with existing and potential customers to develop new futures and options products that provide an array of relevant risk management tools. We are also enhancing our marketing capabilities with a focus on customer education and public relations to cross sell our existing products. We continue to communicate our unique benefits – a secure, effective and cost-efficient place for customers to come and manage their risk through our diverse products, liquidity, anonymity and central counterparty clearing. We continue to look for ways to build upon our success as we continue to grow our business in areas such as emerging markets and the over-the-counter market.

Globalizing the Business. Our goal is to expand and diversify our customer base worldwide and offer customers around the world the most broadly diversified portfolio of benchmark products. In 2008, we continued our initiative to enhance our global marketing efforts in order to broaden the understanding of the benefits of our products, targeting in particular Asia and Europe.

In 2008, we completed our merger with NYMEX Holdings, which adds energy and metals to our already diverse product set. As a combined company, we are better positioned to compete globally with cash, over-the-counter and regulated markets and participate in the fast-growing global energy market. We believe there is potential growth in NYMEX’s energy and metals complexes when combined with our global reach and strategic oversight. NYMEX has also been developing significant new joint ventures and commercial relationships on a global basis, which will enhance our ability as a combined company to jointly market and cross-sell our diverse products across an even broader customer base around the globe. While CME Group has historically been active in the United States, Europe, Latin America and Asia, NYMEX has been actively pursuing growth in Europe and the Middle East. In February 2009, the Dubai Mercantile Exchange (DME) futures contracts became exclusively traded electronically on the CME Globex platform.

We also seek to deploy our technology and transaction processing services globally. In 2008, we continued to deliver on this strategic initiative, furthering our agreement with BM&F with an order routing agreement. Pursuant to our order routing agreement, BM&F products can be traded by participants connected to our CME Globex platform, and CME Group products can be traded by participants connected to BM&F’s Global Trading System platform. Several independent software vendors have established connectivity and our telecommunications hub in Brazil became operational in connection with this initiative. We also finalized our agreement to list the KOSPI 200 futures contracts on CME Globex during nighttime trading hours in Korea.

We will continue to explore opportunities to position CME Group to benefit from growth in key geographies by targeting global customers, through strategic investments and by leveraging our diverse product offerings.

Serving the Over-the-Counter Markets. We intend to continue our initiatives to expand our business into over-the-counter markets by developing over-the-counter products and services and by entering these markets through acquisitions, strategic partnerships and commercial arrangements. As a result of our merger with NYMEX Holdings in 2008, we now own ClearPort. CME ClearPort is the mechanism by which individually negotiated off-exchange trades are submitted for clearing. This platform provides additional clearing functionality for over-the-counter transactions to reduce counterparty risk and create capital efficiencies.

As part of our over-the-counter initiatives, in 2008 we also announced that we would pursue trading and clearing of credit default swaps. In this initiative, Credit Market Derivatives Exchange, LLC (CMDX), a joint venture company that we agreed to form with Citadel, will offer a platform for migration of existing and new credit default swaps to CME Clearing, which will also be able to receive trades in credit default swaps directly from participants. CMDX will also offer an optional electronic trade matching platform for credit default swaps. These initiatives will bring the benefits of multilateral netting and centralized clearing and risk management to the credit default swaps market. In December 2008, we completed regulatory reviews with the Federal Reserve Bank of New York and the CFTC. We have been working with Citadel and potential market participants to bring this offering to market. Pending completion of the SEC’s review of our request for exemptive relief and the completion of discussions and testing with market participants, we plan to launch CMDX and CME Clearing services for credit default swaps.

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In March 2008, we acquired Credit Market Analysis Limited (CMA), a leading provider of credit derivatives market data. CMA currently offers two products (CMA QuoteVision and CMA DataVision) to over-the-counter credit derivatives market participants, primarily focused on asset managers, hedge funds and other buy-side participants.

In 2008, we also launched CME Cleared Swaps which offer the first ever, centrally-cleared interest rate swap to all market participants and filed a petition with the CFTC seeking approval to clear corn basis swaps and calendar swaps for corn, wheat and soybeans.

Products

We believe that the range and diversity of our products contribute significantly to our success. We offer markets in futures and options on futures contracts based on the U.S. interest rate yield curve, equity indexes, foreign exchange, agricultural commodities, energy, metals and alternative investment products. Our products are traded through the CME Globex electronic trading platform, our open outcry auction markets in Chicago and New York City or through privately negotiated transactions that we clear. For the year ended December 31, 2008, we derived $2.1 billion, or 83% of our total revenues, from fees associated with trading and clearing our products. These fees include per contract charges for trade execution, clearing and CME Globex fees. Fees are charged at various rates based on the product traded, the method of trade and the trading privileges of the customer making the trade. Generally, members are charged lower fees than non-members. Certain of our customers benefit from volume discounts and limits on fees as part of our efforts to encourage increased liquidity in our markets. Our markets also generate valuable data and information regarding pricing and trading activity in our products. We identify new products by monitoring economic trends and their impact on the risk management and speculative needs of our existing and prospective customers. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” page 56, for the average daily volume of contracts traded in our four principal product lines for the last three years. Although dislocations in credit and lending markets have significantly impacted our interest rate complex, our other product lines, especially equity indexes, showed solid volume growth in 2008. Looking forward, we will continue to focus on expense discipline while providing customers with the best ways to manage risk at a time of economic uncertainty.

Interest Rate Products. Our interest rate products enable banks and other financial institutions worldwide to hedge interest rate risks, and in turn help to reduce the overall cost of borrowing and financing. Our interest rate products allow our customers to execute transactions across the entire U.S. dollar-denominated yield curve using some of the world’s most actively traded futures and options products. Customers may manage short-, medium- and long-term interest rate risk using our products based on Eurodollars, U.S. Treasuries, swaps and other dollar-related instruments. As a result of our acquisition of CBOT, our interest rate products include CBOT’s thirty-year U.S. Treasury bond futures and options on futures; ten-year, five-year and two-year U.S. Treasury note futures and options; and interest rate swap futures and options and federal funds futures and options.

Fifty-two percent of our overall annual trading volume in 2008 and 38% of our clearing and transaction fees was based upon our interest rate products. The overall volume of our interest rate product line was down compared with 2007. The decrease was as a result of decreased trading in our Eurodollar options contract due to increased volatility in the relationship between the London Interbank Offered Rate (LIBOR) and the overnight federal funds effective rate, declining correlations between risk free Treasury rates and spread products, a slowdown in corporate debt and mortgage originations, industry consolidation, declining assets under management, a severe decrease in mortgage-related structured product transactions and pressure resulting from failures in the repo market.

In 2009, we believe that our interest rate product line will continue to be negatively impacted by the current state of the economy and a zero interest rate policy. We believe that this decline could be partially offset by the increased Treasury issuances and the need to manage the associated interest rate risks as well as transitions to exchange traded and cleared products by over-the-counter participants in response to heightened concerns about counterparty risk and the need for greater balance sheet efficiencies.

Equity Products. Our equity products permit investors to obtain exposure, for hedging or speculative purposes, to changes in the weighting of one or more equity market sectors more efficiently than by buying or selling the underlying securities. By allowing investors to effectively manage stock market risks, our equity products increase investor confidence and overall participation in these important markets.

We are a leading equity index marketplace, offering futures and options products (including our E-mini contracts) on key benchmark equity indexes covering small-, medium- and large-cap companies in the U.S., Europe and Asia. These include the Standard & Poor’s, Dow Jones, NASDAQ, Nikkei, MSCI and FTSE/Xinhua indexes, and others. We have exclusive licensing arrangements with Standard & Poor’s Corporation (S&P), NASDAQ OMX Group, Inc. (NASDAQ OMX) and Dow Jones & Company, Inc. (Dow Jones), which allow us to offer futures and options on futures on their indexes, including our contracts based on the S&P 500 Index, the NASDAQ-100 Index and the Dow Jones Industrial Average. For a detailed description of these licensing arrangements, see the section of this Annual Report on Form 10-K entitled “Item 1. Business—Licensing Agreements.”

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Trading in these products represented 31% of our total trading volume and 32% of our clearing and transaction fees during 2008.

We believe our leading market position in equity products is a result of the liquidity of our markets, the status of the S&P 500, the NASDAQ-100 and the Dow Jones Industrial Average indexes as the principal U.S. financial standards for benchmarking stock market returns, and the appeal to investors and traders of our E-mini products and other equity products and our CME Globex platform. These investors include public and private pension funds, investment companies, mutual funds, insurance companies and other financial services companies that benchmark their investment performance to different segments of the equity markets.

We believe future growth in our equity products will come from increased counterparty credit concerns, continued education of our customers as to the benefits of our equity product portfolio to serve their risk management needs and the benefits of futures products over cash equities. We believe that our equity volumes may also be impacted by the trading volume levels of the underlying markets as well as their level of volatility.

Foreign Exchange Products. We became the first exchange to introduce financial futures when we launched foreign exchange futures in 1972. Our foreign exchange market serves as an effective and efficient means of risk transfer for the global foreign exchange market, bringing together a broad array of client segments by offering investment as well as risk management opportunities. Our customers benefit from dealing anonymously in a fully transparent market, where large and small customers have equal access to the same prices and deep pool of liquidity. Our foreign exchange products provide the tools and resources to hedge foreign exchange risk, facilitating cross-border trade and commerce while mitigating the risks to profitability due to fluctuations in the foreign exchange market. Our foreign exchange market attracts both buy- and sell-side investors, including commercial and investment banks, hedge funds, commodity trading advisors, proprietary trading firms and individual investors. Approximately 95% of our foreign exchange products are traded electronically on the CME Globex platform, ensuring that business is transacted quickly with maximum operational efficiency.

Today, we offer approximately 40 foreign exchange futures and approximately 30 foreign exchange options on futures products, covering major as well as a broad array of emerging market currency pairs in more than 20 different currencies.

In 2008, we saw an average daily volume of 623,000 foreign exchange contracts per day, with a notional value of $84.5 billion a day. Trading in our foreign exchange products represented 5% of our total trading volume in 2008 and 7% of our clearing and transaction fees.

We believe future growth in our foreign exchange product line will come from expanding and diversifying our product suite and customer base. For example, trading in volatility-based options on six of our foreign exchange options began in March 2008. We are expanding our foreign exchange options product suite to appeal to a broader array of customer segments, and we expect continued strong growth in the electronic execution of foreign exchange options on CME Globex in 2009. As we expand our global footprint in the foreign exchange market, we expect increased trading volume from customers outside of the United States. We also expect an increased demand in the over-the-counter market for cleared products, which we are targeting. Firms, however, have reduced their foreign exchange trading volume in light of the current economic conditions and consolidation within the industry.

Commodity and Alternative Investment Products. Our commodity products help establish benchmark prices and play an important role in risk management. These products provide hedging tools for our customers who deal in tangible physical commodities, including agricultural producers of commodities, food processors and consumers of energy. Commodity products were our only products when our exchange first opened for business. We have maintained a strong franchise in our commodity products, including futures contracts based on cattle, hogs, pork bellies, lumber, dairy products, soybeans, corn, wheat, oats and rough rice. Following our acquisition of NYMEX, we also offer contracts based on crude oil, natural gas, heating oil, gasoline, copper and aluminum as well as other soft commodities. Our energy products offer a way for producers, marketers and refiners to manage fuel price risk in a volatile, growing market faced with mounting regulatory and market pressures. In September 2008, we sold the CBOT metals trading complex to NYSE Euronext.

We also provide our customers with non-traditional, alternative investment products to diversify and manage their risk. Our real estate products provide opportunities for risk protection, and extend to the real estate industry the same financial tools that our previous innovations have brought to agriculture and finance. By providing a means of hedging exposure to real estate prices, customers can diffuse the potential impact of sustained declines in real estate prices. We also are the only regulated exchange that offers risk management products on the weather market through our weather contracts based on aggregate temperatures in more than 40 cities around the world as well as hurricane, snowfall and frost indexes.

Commodity and alternative investment products accounted for 12% of our trading volume and 23% of our clearing and transaction fees during 2008.

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We continue to execute our strategy of growing our customer base and providing side-by-side access to our commodity markets. We believe the changing perception of commodities as an asset class provides an opportunity for growth in our markets. We also anticipate growth in our energy products as a result of price volatility, increased use of CME ClearPort due to credit concerns and continued enhancements to our product portfolio. However, we believe that increases in volume may be offset by the negative impact of the current economic situation.

Market Data and Information Products. Our markets generate valuable information regarding prices and trading activity in our products that we believe enhances the appeal of our products. The dissemination of real-time data generates revenues and supports our customer base with timely market information. We sell our market data, which includes information about bids, offers, trades and trade size in our products, to banks, broker-dealers, pension funds, investment companies, mutual funds, insurance companies, individual investors and other financial services companies or organizations that use our markets or monitor general economic conditions. We distribute our market data directly to our electronic trading customers as part of their access to our markets through our electronic facilities. We also distribute market data via dedicated networks to quote vendors who consolidate our market data with that from other exchanges, other third party data providers and news services, and then resell their consolidated data. Revenues from market data products totaled $279.5 million, or 11% of our total revenues, in 2008.

Sophisticated quantitative approaches to risk management as well as customer time sensitivity have created new needs, uses and demands for trading-related data and analytics. This timely information has become even more important in light of the volatility and uncertainty in today’s markets. We continue to enhance our current market data and information product offerings by creating new value-added services to complement our market data products, including databases, analytical tools and other services to assist end-users. In 2008, we launched the latest version of E-quotes, a real-time streaming market data application that offers quotes, charting, advanced analytics and news on CME Group traded products. E-quotes will enable users to access prices for all CME Group listings. Additionally, to expand our market data product offerings, in 2008 we purchased CMA. CMA provides credit market pricing data and intra-day services to increase productivity, efficiency and speed of transactions in the over-the-counter markets.

As part of our market data and information products business, we also supply services to S&P and OneChicago, our joint venture with the Chicago Board Options Exchange, Inc. (CBOE) and Interactive Brokers Group, in connection with the usage reporting, contract administration and associated billing and revenue collection for the display and integration of their market data into our standard market data distribution. We are the exclusive distributor of Dow Jones Index data from our market data distribution platform. We also provide access to all prices for products listed on the Minneapolis Grain Exchange and the Kansas City Board of Trade, which are available for electronic trading on CME Globex.

We believe that there has been a decline in subscriptions of market data due primarily to the consolidation of many of our customers and related headcount reductions as a result of the current financial crisis. For example, the number of subscriptions for devices for CME and CBOT market data combined decreased from 293,000 at December 31, 2007 to 290,000 December 31, 2008. To the extent that our customers continue to consolidate, we could experience further declines in our market data revenues derived from such subscriptions.

Execution

Our primary trade execution facilities consist of our CME Globex electronic trading platform and our open outcry trading floors in Chicago and New York City. These execution facilities offer our customers immediate trade execution and price transparency and are supported by substantial infrastructure and technology for order routing, trade reporting, market data dissemination and market surveillance and regulation. In addition, trades can be executed through privately negotiated transactions that are cleared and settled through our clearing house.

Electronic Trading. Our CME Globex electronic trading platform maintains an electronic, centralized order book and trade execution algorithm for futures contracts and options on futures contracts and allows users to enter orders directly into the order book. In January 2008, we completed the migration of CBOT’s products to the CME Globex platform. Pursuant to a previously existing transaction-processing services agreement, we began listing NYMEX’s products on our platform in 2006.

In 2008, 79% of our average daily trading volume was executed electronically, compared with 78% in 2007. During 2008, approximately 76% of our clearing and transaction fees revenue was derived from electronic trading.

Open Outcry Trading. We also offer our members the ability to execute transactions in an open-auction format on our trading floors—a centralized meeting place for traders and floor brokers to trade our products. Orders by market participants not physically located on the trading floor are communicated to floor brokers. Current market information and news are displayed on wallboards hung above the trading pits. In the second quarter of 2008, we integrated the CME and CBOT trading floors at one location at 141 West Jackson Boulevard in Chicago. As a result of our acquisition of NYMEX, we now operate open outcry trading in New York City at One North End Avenue. We plan to integrate the NYMEX and COMEX trading floors into one floor in the second quarter of 2009. Open outcry trading represented 15% of our average daily trading volume in 2008 and accounted for approximately 14% of our clearing and transaction fees revenue.

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Privately Negotiated and Over- the-Counter Transactions. In addition to offering traditional open outcry and electronic trading through the CME Globex platform, we permit qualified customers to trade our products by entering into privately negotiated transactions, which are reported and included in the market data we distribute. We also clear, settle and guarantee these transactions through our clearing house and CME Clearport. These off exchange transactions, provide our customers with the flexibility to negotiate their own prices and still take advantage of our financial safeguards. During 2008, approximately 10% of our clearing and transaction fees revenue was derived from this type of trading.

Clearing

We operate our own clearing house—CME Clearing—that clears, settles and guarantees the performance of all transactions matched through our execution facilities and on third party exchanges for which we provide clearing services. Our integrated clearing function is designed to ensure the safety and soundness of our markets. Ownership and control of our own clearing house also enables us to retain the revenue associated with both the trading and clearing of our products. By owning our clearing house, we control the cost structure and the technology development cycle for our clearing services. It helps us manage our new product initiatives without being dependent on an outside entity. It also benefits our customers by creating operational, risk management and product benefits. Additionally, owning our own clearing house allows us to generate additional revenue by providing clearing services to other exchanges. Up until the closing of the merger with CBOT Holdings, we provided clearing services to CBOT.

In 2008, our clearing house cleared an average of 11.0 million contracts daily and 3.0 billion contracts overall. As of December 31, 2008, we acted as custodian for approximately $116.1 billion in performance bond, security deposit and other collateral deposited by our clearing firms and, during 2008, we transferred an average of approximately $4.4 billion a day in settlement funds through our clearing system. We are recognized by the United Kingdom’s Financial Services Authority as a Recognised Overseas Clearing House, which enables us to provide global clearing services to market participants in the United Kingdom and serve a wider range of those customers’ risk management needs. In addition, our clearing house guarantees the performance of all our contracts with a financial safeguards package of approximately $6.6 billion (as of December 31, 2008).

The clearing function provides three primary benefits to our markets: a reliable credit guarantee; efficient, high-volume transaction processing; and cost and capital efficiencies. The services we provide can be broadly categorized as follows:

Market Protection and Risk Management. Our clearing house guarantee of performance is a significant attraction, and an important part of the functioning of our exchange.

Central counterparty guarantee. Because of this guarantee, our customers do not need to evaluate the credit of each potential counterparty or limit themselves to a selected set of counterparties. The benefits of centralized clearing have been made even more apparent during the recent financial uncertainty. Although not a guarantee of future performance, in our more than 100 year history of trading, we have never had a default or a loss of customer funds resulting from the failure of a clearing firm.

Performance bond requirements. Performance bonds are deposits required from our clearing firms to ensure that they can cover potential losses in connection with their trading positions. Performance bonds are calculated by our Standard Portfolio Analysis of Risk (SPAN) system that is used by about 50 exchanges and clearing organizations around the world. SPAN evaluates overall portfolio risk by calculating the worst possible loss that a portfolio of derivative and physical instruments might reasonably incur over a specified time period (typically one trading day). This is done by computing the gains and losses that the portfolio would incur under different market conditions. Additionally, the substitution of our clearing house as the counterparty to every transaction allows our customers to establish a position with one party and then to offset the position with another party. This contract offsetting process provides our customers with flexibility in establishing and adjusting positions and provides for performance bond efficiencies.

Twice daily mark-to-market process. At each settlement cycle, our clearing house values, at the market price prevailing at that time, or marks-to-market, all open positions and requires payments from clearing firms whose positions have lost value and makes payments to clearing firms whose positions have gained value. Our clearing house marks-to-market all open positions at least twice a day, and more often if market volatility warrants. Marking-to-market provides both participants in a transaction with an accounting of their financial obligations under the contract. Having a mark-to-market cycle of a minimum of two times a day helps

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protect the financial integrity of our clearing house, our clearing firms and market participants. This allows our clearing house to identify quickly any clearing firms that may not be able to satisfy the financial obligations resulting from changes in the prices of their open contracts before those financial obligations become exceptionally large and jeopardize the ability of our clearing house to ensure performance of their open positions. This transparency makes it difficult for traders to hide losses or disguise unusual profits.

Segregation of customer funds. Regulations require our clearing firms to separately account for and segregate customers’ positions and monies from their own (requirements that also extend to CME Clearing). If a clearing firm becomes financially unstable or insolvent due to a financial issue, a customer’s funds held in such a segregated account (provided they are not involved in the financial issue itself) will not be subject to the clearing firm’s creditor claims. In situations where a clearing firm were to become insolvent, the customer accounts could be transferred to another clearing firm.

Twenty-four hour monitoring by risk management team. In order to ensure performance, we establish and monitor financial requirements of our clearing firms. We employ approximately 100 employees who use a variety of sophisticated tools to observe risk in our markets 24 hours a day, six days a week. These employees work closely with other teams across the organization in products and services, legal and market regulation as well as with our clearing firms to help our customers manage risk during periods of economic uncertainty.

Multi-billion dollar safeguards package. CME Clearing’s approximately $6.6 billion financial safeguard system (as of December 31, 2008) is designed for the benefit and protection of both clearing members and their customers and is described in more detail on page 71 of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Credit default swaps margining regime. In connection with our decision to enter the market for clearing credit default swaps, we modified our framework to address the unique characteristics of this product. In addition to our traditional risk management procedures described above, we will be using a multi-factor model for margining designed to address the unique risk factors relating to these products.

Transaction Processing and Position Management . Our CLEARING 21 system, developed with NYMEX in the early 1990s, processes reported trades and positions on a real-time basis, providing users with instantaneous information on trades, positions and risk exposure. CLEARING 21 is able to process trades in futures and options products, securities and cash instruments. CLEARING 21 can also support complex new product types, including combinations, options on combinations, options on options, swaps, repurchase and reverse repurchase agreements, and other instruments. Through CLEARING 21 user interfaces, our clearing firms can electronically manage their positions, exercise options, enter transactions related to foreign exchange deliveries, manage collateral posted to meet performance bond requirements and access all of our other online applications. Together with our order routing and trade matching services, we offer straight-through electronic processing of transactions in which an order is electronically routed, matched, cleared and made available to the clearing firm’s back-office systems for further processing.

Settlement, Collateral and Delivery Services. We manage final settlement in all of our contracts, including cash settlement, physical delivery of selected commodities, and option exercises and assignments. Because some initial and maintenance performance bonds from clearing firms, as well as mark-to-market obligations on some of our contracts, are denominated in various foreign currencies, we offer multi-currency performance bond and settlement services.

Generally, although most of our futures contracts are liquidated before the expiration of the contract, the underlying financial instruments or commodities for the remainder of the contracts must be delivered. We act as the delivery agent for all contracts, ensuring timely delivery by the seller of the exact quality and quantity specified in a contract and full and timely payment by the buyer.

To administer its system of financial safeguards efficiently, our clearing house has developed banking relationships with a network of major U.S. banks and banking industry infrastructure providers, such as the Society for Worldwide Interbank Financial Telecommunications. Among the key services provided to our clearing house by these banks and service providers are a variety of custody, credit and payment services that support the substantial financial commitments and processes backing the guarantee of our clearing house to market participants.

Cross-Margining and Mutual Offset Services. Cross-margining arrangements reduce capital costs for clearing firms and customers. These agreements permit an individual clearing house to recognize a clearing firm’s open positions at other participating clearing houses, and clearing firms are able to offset risks of positions held at one clearing house against those held at other participating clearing houses. This arrangement reduces the need for collateral deposits by the clearing firm. For example, our cross-margining program with the Options Clearing Corporation reduced performance bond requirements for our members by an average of approximately $1.5 billion per day utilized in 2008. We have implemented cross-margining arrangements with the Fixed Income Clearing Corporation and LCH.Clearnet Group for positions at the London International Financial Futures and Options Exchange Limited that are cleared through LCH.Clearnet Group. In addition, our mutual offset agreement with the Singapore Exchange allows a clearing firm of either exchange initiating trades in certain products on either exchange to execute after-hours trades at the other exchange in those products and then transfer them back to the originating exchange. This mutual offset arrangement enables firms to execute trades at either exchange virtually 24 hours per day. This arrangement has been in place since 1984 and was renewed in October 2006 for an additional three-year term with automatic renewals for one year each unless terminated by either party.

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Investment Services. In order to achieve collateral efficiencies for our clearing firms, we have established a number of collateral programs under the designation Interest Earning Facility (IEF). Under this program, our clearing firms may select from four different IEF programs to meet their individual needs. The programs are designed to enable our clearing firms to make optimal use of the demand deposit cash accounts and security accounts they have established to satisfy our performance bond requirements. We earn fee income in return for providing these value-added services to our clearing firms.

Our clearing house launched a securities lending program in 2001 using a portion of certain securities deposited to meet the proprietary performance bond requirements of our clearing firms. Under this securities lending program, we lend a security to a third party and receive collateral in the form of cash. The majority of the cash is then invested to generate interest income. The related interest expense represents payment to the borrower of the security for the cash collateral retained during the duration of the lending transaction. Securities on loan are marked-to-market daily and compared to collateral received. The CME program is currently suspended due to high volatility in the credit markets.

Technology

Our operation of both electronic and open outcry trading facilities and a clearing house has influenced the design and implementation of the technologies that support our operations.

Trading Technology. We have a proven track record of operating successful electronic and open outcry markets by developing and integrating multiple, evolving technologies that support a growing and substantial trading volume. The integrated suite of technologies we employ to accomplish this has been designed to support a significant expansion of our current business and provides us with an opportunity to leverage our technology base into new markets, products and services.

As electronic trading activity expands, we continue to provide greater match engine functionality unique to various markets, market models and product types. We have adopted a modular approach to technology development and engineered an integrated set of solutions that support multiple specialized markets. We continually monitor and upgrade our capacity requirements. Our goal is to design our systems to handle at least one and a half times our historical peak transactions in our highest volume products. Significant investments in production planning, quality assurance and certification processes have enhanced our ability to expedite the delivery of the system enhancements that we develop for our customers. In January 2008, we completed the migration of CBOT products onto the CME Globex platform. We continue to implement technology upgrades that provide speed and functionality enhancements for our customers. In the fourth quarter of 2008, we completed server upgrades for our interest rate match engines to allow for sizeable speed improvements and the launch of implied, intercommodity spreads for Treasury futures and swap futures.

Speed, reliability, scalability, capacity and functionality are critical performance criteria for electronic trading platforms. A substantial portion of our operating budget is dedicated to system design, development and operations in order to achieve high levels of overall system performance. In 2008, we continued our efforts to grow and enhance our electronic trading capabilities. For example, we enhanced our CME Globex credit controls to provide pre-execution risk controls that enable our customers to set defined trading limits and select real-time notifications if those limits are exceeded, including e-mail notification, order blocking and order cancellation. We also maintain remote data facilities to provide additional system capacity and redundancy for our trading and clearing technology. Our data centers support our customer interfaces, trading and execution systems, as well as clearing and settlement operations.

The technology systems supporting our trading operations can be divided into five major categories:

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The CME Globex electronic trading platform includes the distribution, order routing, order management, trade matching and market data technology. CME Globex’s modularity and functionality enable us to selectively add products with unique trading characteristics onto the trading platform.

The distribution technologies we offer differentiate our platform and bring liquidity and trading volume to our execution facilities. As of December 31, 2008, we had approximately 980 direct connections with our systems for customers across the globe. Many of these customers connect through a dedicated private network that is readily available, has wide distribution and provides fast connections in the Americas, Europe and Asia. We have telecommunications hubs in Amsterdam, Dublin, London, Milan, Paris, Sao Paulo and Singapore to respond to customer requests and reduce the cost of trading for our foreign customers. We plan to add hubs in Seoul and Shanghai.

In order routing and management, we offer a range of mechanisms and were among the first U.S. derivatives exchanges to implement the FIX protocol—the standard order routing protocol used within the securities industry. In addition, our order routing and order management systems are capable of supporting multiple electronic trading match engines. This functionality gives us great latitude in the types of markets that we choose to serve.

Several key technology platforms and standards are used to support these activities, including fault-tolerant Hewlett Packard Integrity NonStop servers that incorporate Intel Itanium processors, IBM mainframes, Microsoft software, Hitachi and EMC Storage Area Network (SAN equipment), Sun Microsystems and Hewlett Packard servers, Oracle and DB2 databases, LINUX, UNIX, Novell, TIBCO middleware and multi-vendor network solutions.

Our futures match engine design was based upon a computerized trading and match software known as the NSC system. We are in the early stages of enhancing our options engine to support the migration of our futures products from the NSC system to our internally designed options platform. Our options match engine was designed and built at CME with focus on the speed of matching buy and sell orders and fault tolerance for 24-hour trading. This transition to a single match engine will bring better system performance and more opportunity for combination futures/options trading, while allowing us to more easily and cost-effectively scale our system for future growth. All existing functionality will be present and we expect that the migration will be relatively seamless to the end customer. In February 2009, we migrated our FX currency futures to the options platform and plan to move our other product lines to the system in the future. We continue to work on enhancements to our match engine to build a fully-functional electronic marketplace for unique trading demands where our customers can offset their risk with as much ease as in our open outcry trading facilities.

Over the last three years we have made significant investments in market data technologies to support increased trading and messaging volumes. Enhancements include performance improvements, scalability with a new multicast distribution platform, and a FIX 5.0 compliant messaging format. These implementations benefit our customers through reducing required bandwidth and costs as well improving performance.

Clearing Technology. CLEARING 21, our clearing and settlement software, SPAN, our margining and risk management software and CME ClearPort, form the core of our clearing technology.

CLEARING 21 is a system for high-volume, high-capacity clearing and settlement of exchange-based transactions that we developed jointly with NYMEX in the early 1990s. The system offers clearing firms improved efficiency and reduced costs. CLEARING 21’s modular design gives us the ability to rapidly introduce new products. The software can be customized to meet the unique needs of specialized markets.

Our SPAN system is a highly sophisticated methodology that calculates performance bond requirements by analyzing the “what-ifs” of virtually any market scenario. Developed and implemented in 1988 by CME, SPAN was the first system ever to calculate performance bond requirements exclusively on the basis of overall portfolio risk at both the clearing firm and customer level. In the years since its inception, SPAN has become the industry standard for portfolio risk assessment. It is the official performance bond (margin) mechanism of 50 registered exchanges, clearing organization, service bureaus and regulatory agencies throughout the world.

CME ClearPort is our flexible, internet-based system we acquired through our acquisition of NYMEX that provides clearing services of over-the-counter transactions. The system lets market participants take advantage of the financial depth and security of our clearing house. Through this technology, customers can conduct their own transactions off-exchange, negotiate their own prices, and still take advantage of our central counterparty clearing.

Building Services

Following our mergers with CBOT Holdings and NYMEX Holdings, we now own and manage real estate, with approximately 1.5 million square feet of commercial space in the central business district of Chicago and approximately 500,000 square feet in downtown New York City. As of December 31, 2008, our real estate was approximately 95% occupied, with nearly 40% of the total space used by us. In 2008, we completed the renovations of the CBOT trading floor and migrated the CME trading floors from 20 South Wacker Drive to 141 West Jackson Boulevard in Chicago. We expect to consolidate the NYMEX and the COMEX trading floors located at One North End Avenue in New York City in the second quarter of 2009.

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Tenants pay market rates for rent. The majority of tenant leases have terms of three to five years, with large tenants generally having leases for up to fifteen years. As of December 31, 2008, the largest tenant in Chicago, other than us, leased approximately 8% of the total area and the next five largest tenants leased about 14% of the total area. In New York City, the largest tenant leased approximately 12% of the total area. We manage both the real estate and the general services relating to our real estate such as cleaning, power and telephone services. Building services generated about 1% of our total revenues in 2008.

Business Continuity Planning

We continue to strengthen and upgrade our disaster recovery facilities and capabilities. We have dedicated significant resources to improve our continuity planning. For example, our disaster recovery infrastructure and activities include:

Additionally, in order to ensure proper coordination during a potential crisis, we have established relationships with the local business community, law enforcement, and local and regional governmental emergency agencies.

Strategic Relationships

We continually review our growth strategy and whether it is in the interests of our shareholders to engage in discussions with other parties regarding various strategic acquisitions, partnerships, divestitures and other arrangements and alliances.

The following is a summary of our key strategic relationships:

BM&F. To increase liquidity and expand the international market for our customers, we have established a partnership with BM&F, the leading exchange in Latin America. Pursuant to an order routing agreement, BM&F products can be traded by participants connected to the CME Globex electronic trading platform, and CME Group products can be traded by participants connected to the BM&F’s Global Trading System electronic trading platform. We own an equity stake of approximately 5% in BM&F and BM&F owns an equity stake of approximately 1.7% in CME Group.

Confirm Hub. ConfirmHub, LLC is a joint venture founded in 2004 by the leaders in the energy brokerage and exchange industry. The current membership consists of the GFI Group, Amerex, ICAP, Tullett Prebon and NYMEX. ConfirmHub allows users to manage confirmation processing of brokered, exchange-traded, and bilateral transactions through a single web services application programming interface and an interactive, web-based trade confirmation application.

Dubai Mercantile Exchange. In February 2009, DME futures contracts became exclusively traded electronically on the CME Globex platform. The listing of the DME Oman crude oil futures contract and the DME Oman crude oil financial contract on CME Globex will further increase opportunities for improved risk management by Asian refiners through sophisticated hedging strategies, as well as arbitrage opportunities and other advanced trading strategies.

Green Exchange. In 2008, NYMEX announced its intention to establish the Green Exchange as a joint venture among NYMEX and a number of major market participants. In anticipation of completing negotiations among these parties, NYMEX launched a comprehensive range of environmental futures, options and swap contracts for markets focused on solutions to climate change and renewable energy. These products will be committed to the Green Exchange upon completion of definitive documentation establishing the Green Exchange as a separate entity. Negotiations with the founding members of the Green Exchange are ongoing.

Korea Exchange. In 2008, we finalized our five-year agreement with KRX to list the KOSPI 200 futures contract on CME Globex during nighttime trading hours in Korea. As part of the agreement, we will create a telecommunications hub in Seoul.

Singapore Exchange Limited. In October 2006, we renewed our mutual offset agreement with the Singapore Exchange for an additional three-year term with automatic renewals for one year each unless terminated by either party. This relationship allows a clearing firm of either exchange initiating trades in certain products on either exchange to execute after-hours trades at the other exchange in those products, then transfer them back to the originating exchange.

As a result of the merger with CBOT Holdings, we also list the products of the Minneapolis Grain Exchange and the Kansas City Board of Trade on the CME Globex platform and act as their sole distributor of market data.

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In 2008, we agreed to wind down FXMarketSpace, our joint venture with Reuters Group PLC that created a centrally cleared, global over-the-counter foreign exchange marketplace.

Marketing Programs and Advertising

Our marketing programs align our core business objectives and product line goals with positioning, messaging and customer targeting strategies designed to increase awareness and use of our products. The marketing strategy and tactics include conducting market research to gather customer insight, and the implementation of our marketing campaigns, which may include online and print advertising, direct marketing, public relations, online marketing and educational programs.

Our marketing programs primarily target institutional customers and, to a lesser extent, individual traders. Our marketing programs for institutional customers aim to inform traders, portfolio managers, corporate treasurers and other market professionals about novel uses of our products, such as new hedging and risk management strategies. We also strive to educate these users about changes in product design, performance bond requirements and new clearing services. We participate in major domestic and international trade shows and seminars regarding futures contracts and options on futures contracts and other derivatives products. In addition, we sponsor educational workshops and marketing events designed to educate market users about our products. Through these relationships and programs, we attempt to understand the needs of our customer base and use information provided by them to drive our product development efforts.

Our advertising strategies seek to increase awareness and strengthen perceptions of CME Group among our institutional and retail customers, as well as support an increase in our trading volume. We increased our event-driven marketing to respond to current trends. For example, in light of the recent financial crisis, we created a targeted marketing program to highlight the benefits of our central counterparty clearing model and our financial safeguards package. The campaign included print advertising, online marketing and educational programs. Additionally in September 2008, we hosted our first-ever Global Financial Leadership Conference, where participants had an opportunity to interact with some of the world’s leaders in business, finance and politics to discuss emerging geopolitical trends and debate critical economic issues. We were privileged to have former U.K. Prime Minister Tony Blair and former Federal Reserve Chairman Paul Volcker as our keynote speakers.

Our primary method of advertising has been through print media, utilizing trade magazines and newsletters as well as daily business publications. However, we also use online, television sponsorship and other direct advertisements to reach our target audiences.

Our marketing program includes corporate and product brochures, designed to communicate the depth and breadth of our capabilities; our annual report to shareholders, designed to showcase how key customers globally use our products to mitigate risk, in addition to presenting our financial results; and CME Group Magazine, a quarterly publication, designed to keep our customers up to date on developments that can enhance their successful participation in the derivatives industry. The magazine features customer case histories, new product information, technology updates, trend stories and news briefs and is made available on our Web site.

Competition

The industry in which we operate is highly competitive and we expect competition to continue to intensify. We encounter competition in all aspects of our business, including from entities having substantially greater capital and resources and offering a wider range of products and services and some operating under a different and possibly less stringent regulatory regime. Prior to the passage of the Commodity Futures Modernization Act of 2000 (CFMA), futures trading was required to take place on, or subject to the rules of, a federally designated contract market. The costs and difficulty of obtaining contract market designation and corresponding regulatory requirements created significant barriers to entry for competing exchanges. The passage of the CFMA and other changing market dynamics have led to increasing competition from a number of different domestic and international sources of varied size, business objectives and resources. For example, the CFMA permits SEC-regulated and bank clearing organizations to clear a broad array of derivatives products in addition to the products that clearing organizations have traditionally cleared. The CFMA also permits banks and broker-dealers, and some of their affiliates, to offer and sell foreign exchange futures to retail customers without being subject to regulation under the Commodity Exchange Act (CEA). We now face competition from other futures, securities and securities option exchanges; over-the-counter markets; clearing organizations; consortia formed by our members and large market participants; alternative trade execution facilities; technology firms, including market data distributors and electronic trading system developers; and others.

Competition in our Derivatives Business

We believe competition among exchanges in the derivatives and securities business is based on a number of factors, including, among others:

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We believe that we compete favorably with respect to these factors, and that our deep, liquid markets; diverse product offerings; rate and quality of new product development; and efficient, secure settlement, clearing and support services distinguish us from our competitors. We believe that in order to maintain our competitive position, we must continue to expand globally; develop new and innovative products; enhance our technology infrastructure, including its reliability and functionality; and maintain liquidity and low transaction costs.

Over the past few years there have been significant changes in the industry’s landscape as a result of the wave of consolidation and increased competition. For example, during the past three years, in addition to our mergers with CBOT Holdings and NYMEX Holdings, the following consolidations occurred:

ICE also has a pending agreement to acquire the Clearing Corporation, an independent clearing house owned by large derivatives dealers. At the end of 2008, there were 52 futures exchanges located in 29 countries, including 6 exchanges in the United States. Additionally, there has been an increase in activity among derivative dealers, banks and other entities to form competing exchanges. In 2007, a consortium of 12 financial institutions formed an exchange, Electronic Liquidity Exchange (ELX), to enter the futures market initially listing interest rate products and targeting our U.S. Treasuries product line. Options Clearing Corporation will provide clearing and delivery service for the exchange and the National Futures Association will provide regulatory oversight. In November 2008, ELX filed an application with the CFTC for designation as a contract market. ELX is expected to become operational following receipt of regulatory approval. Additionally, other financial firms have invested in a number of projects in an effort to compete with existing futures exchanges, including Project Rainbow (targeting short-term Euribor and Sterling interest rate contracts) and Turquoise. These entrants into our industry may increase competitive pressure on us.

Because equity futures contracts are alternatives to underlying stocks and a variety of equity option and other contracts provide an alternative means of obtaining exposure to the equity markets, we also compete with NYSE Euronext and other securities and options exchanges, dealer markets and alternative trading systems in this product line as well ICE in connection with its futures and options on futures contracts based on the Russell indexes.

We face competition from the over-the-counter market with the trading of contracts similar to those traded or cleared on our exchanges, such as swaps, forward contracts and other exchange “look-alike” contracts, in which parties directly negotiate the terms of their contracts.

We also face a threat of trading volume loss if a significant number of our traditional participants decide to trade futures or similar products among themselves without using any exchange or specific trading system. The CFMA allows nearly all of our largest customers to transact futures or similar products directly with each other. While those transactions raise liquidity and credit concerns, they may be attractive based on execution costs, flexibility of terms, negotiability of margin or collateral deposits, or other considerations. Additionally, changes under the CFMA permitting the establishment of stand-alone clearing facilities for futures and over-the-counter derivatives transactions will facilitate the mitigation of credit-risk concentrations arising from such transactions.

Competition in our Transaction Processing Business

In addition to the competition we face in our derivatives business, we face a number of competitors in our transaction processing and other business services, including:

In the past few years, there has been increased competition in the provision of clearing services. We compete with other derivatives exchanges that provide clearing services as well as with some of our largest customers who are part of clearing organizations. The

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Clearing Corporation is owned by 17 shareholders, many of whom represent derivatives marketplace participants and market makers, and provides clearing services to third parties. As part of our strategic initiatives, we have been targeting the over-the-counter market, including our credit default swap initiative to facilitate the clearing of bilaterally executed trades. In December 2008, NYSE Euronext began clearing credit default swaps in Europe following regulatory approval. EUREX and ICE are also undertaking steps to provide these services. The Clearing Corp. has entered into a memorandum of understanding with ICE in connection with a cleared credit default swaps initiative to be acquired by ICE. ICE operates three regulated clearing houses to provide clearing services to its futures exchange. We believe that other exchanges may also undertake to provide clearing services.

We believe competition in the transaction processing and business services market is based on, among other things, the cost of the services provided; quality and reliability of the services; timely delivery of the services; reputation; and value of linking with existing products, markets and distribution.

Competition in our Market Data Business

Technology companies, market data and information vendors and front-end software vendors also represent potential competitors because, as purveyors of market data, these firms typically have substantial distribution capabilities. As technology firms, they also have access to trading engines that can be connected to their data and information networks. Additionally, technology and software firms that develop trading systems, hardware and networks that are otherwise outside of the financial services industry may be attracted to enter our markets. This may lead to decreased demand for our market data.

Regulatory Matters

Our operations as a futures exchange have historically been subject to extensive regulation by the CFTC. The CFTC is an independent federal agency with exclusive jurisdiction over the futures market. The Commission consists of five Commissioners, appointed to staggered five-year terms by the President, with the advice and consent of the Senate. The CFTC carries out the regulation of the futures markets in accordance with the provisions of the CEA and the CFMA. The CFTC is subject to reauthorization every five years, which most recently occurred in 2008.

Although the CFMA significantly reduced our regulatory burdens, we remain extensively regulated by the CFTC. In light of the widespread financial and economic difficulties, particularly acute in the latter half of 2008 and early 2009, there have been many calls for a restructuring of the regulation of financial markets. In light of the transition to a new Presidential administration, these new proposals as well as previous proposals calling for the merger of the CFTC and the SEC, such as the Department of Treasury’s Blueprint for a Modernized Financial Regulatory Structure , we cannot predict what a restructured regulatory framework will look like or what impact it may have on our business. The President’s appointee to lead the CFTC has recently called for more regulation of futures markets and expressed concern respecting the impact of speculation on price volatility. Draft bills circulating in Congress call for restrictions on speculative trading by means of hard position limits in all contracts and limitations on hedge exemptions that could affect trading volume. In addition, future regulations could limit speculation in our markets or include a more rules-based approach rather than our current principles-based approach under the CFTC regulatory regime. To the extent the regulatory environment is less beneficial for us, our business, financial condition and operating results could be negatively affected.

The CFMA amended the CEA in 2000 and created the current principles-based regulatory approach. For regulated markets, the CFMA codified a three-tiered regulatory structure for the trading of derivatives that distinguishes among markets based on the types of contracts traded and the sophistication of the market participants. The CFMA generally requires that contract markets, such as our primary exchanges (CME, CBOT, NYMEX and COMEX), register with the CFTC and establish their compliance with seventeen core principles: rule compliance and enforcement; listing of contracts not readily susceptible to market manipulation; trade monitoring system; position limits; emergency authority; information availability; daily publication of trading information; contract execution; procedures for recording and safe storage of trade information; financial integrity; market participant protections; dispute resolution; fitness standards; conflict of interest management; governing board composition; recordkeeping; and antitrust considerations. Additionally, the CFMA generally requires that derivatives clearing organizations, like our clearing house, register with the CFTC and demonstrate their compliance with thirteen core principles: financial, operational and managerial resources; member and product eligibility; risk management procedures and tools; adequate settlement procedures; treatment of customer funds; member default procedures; rule monitoring and enforcement system; clearing system safeguards; reporting; recordkeeping; public information; information sharing; and antitrust considerations.

Under the oversight of the CFTC, our exchanges are operated as separate self-regulatory organizations. Generally this requires the promotion of market integrity; protection of investors; and enforcement of financial requirements, sales and trading practices of members. CBOT, NYMEX and COMEX outsource responsibility for trade matching, regulatory and clearing services to CME. Our integrated compliance and market surveillance functions allow detailed tracking of all trading and clearing activities. Our regulatory processes are reviewed and audited by the CFTC. Demutualization and the increasing utilization of electronic trading systems by traders from remote locations may, among other developments, impact our ability to continue the traditional form of “self-regulation” that has been an integral part of the CFTC regulatory program.

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We have also “notice registered” with the SEC as a special purpose national securities exchange solely for the purpose of trading security futures products. As a result, the SEC is authorized to review some of our rules relating to these security futures products. Our members trading those products are subject to registration requirements and duties and obligations to customers under the securities laws that do not pertain to their other futures business.

The proposed Presidential budget has, from time to time, included a proposal to impose a transaction tax on futures traded domestically. Additionally, recently proposed legislation has included a tax on certain transactions in an effort to generate additional funding to support the costs of the recently enacted economic stimulus package. While many participants in the futures industry, including us, oppose these proposals, we cannot guarantee that such proposals will not be enacted. The imposition of any such tax would increase the cost of using our products and, consequently could adversely impact our trading volumes, revenues and profits and may also adversely impact our ability to compete on an international level.

Our Members

We operate four separate self-regulatory exchanges: CME, CBOT, NYMEX and COMEX. Individuals may be members at any or all of the exchanges to trade our products. Members are individual traders, as well as most of the world’s largest banks, hedge funds, brokerages and investment houses. Trading on our open outcry trading floors is conducted exclusively by members in Chicago and New York City. Members can execute trades for their own accounts, for clearing firm accounts, for the accounts of other members or for the accounts of customers of clearing firms. Members who trade for their own account, including those who lease trading rights, qualify for lower transaction fees in recognition of the market liquidity that their trading activity provides. These members also benefit from market information advantages that may accrue from their proximity to activity on the trading floors. In 2008, our members were responsible for 79% of our total trading volume. As of December 31, 2008, there were approximately 130 clearing firms. Membership enables a customer to trade specific products at reduced rates and lower fees, and to trade directly from the applicable trading floor or electronically through CME Globex. Memberships can be bought, sold and leased. A customer can apply for and hold a membership at CME, CBOT, NYMEX or COMEX – depending on the products that will be traded. Rights and privileges of membership are exchange-specific. A potential member must file with the National Futures Association (NFA) either as a floor trader or floor broker if they intend to access one of our trading floors. If a customer will use the membership for the purpose of filling orders for other members or customers they must apply to the NFA for a floor broker’s license.

Applicants for membership are required to be of good moral character, reputation and business integrity. They must also have adequate financial resources and credit to assume the responsibilities and privileges of membership. All members must understand the rules and regulations of the applicable exchange and agree to abide by them. Additionally, they must comply with the provisions of the CEA and the rules and regulations issued by the CFTC.

Our market regulation department is the investigative and enforcement arm of our exchanges with regard to exchange rules. Members who are found to have violated a rule can be subject to sanctions such as fines, trading suspensions and/or expulsion from the particular exchange.

Our shareholder relations and membership services department maintains an auction market for trading rights at our exchanges.

CME Memberships

There are four divisions of membership at CME: the Chicago Mercantile Exchange (CME) division; the International Monetary Market (IMM) division; the Index and Option Market (IOM) division; and the Growth and Emerging Markets (GEM) division. Each membership division has different trading rights.

Under the terms of CME Group’s certificate of incorporation, members of the CME exchange, as Class B shareholders, have the ability to protect their rights to trade by means of special approval rights over changes to the operation of the markets and are entitled to elect six of the directors on our board, which is currently comprised of a total of 33 individuals. In particular, the certificate of incorporation grants the holders of our Class B common stock the right to approve any changes to the trading floor rights, access rights and privileges that a member has, the number of memberships in each membership class and the related number of authorized shares in each class of Class B common stock and the eligibility requirements to exercise trading rights or privileges. Class B shareholders must approve any changes to these special rights. We are also required to maintain open outcry trading so long as certain liquidity thresholds are met. Class B shares have the same equitable interest in our earnings and receive the same dividend payments as our Class A shares.

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CBOT Memberships

There are five series of Class B memberships in CBOT represented by memberships in our CBOT subsidiary: Series B-1 (Full) members, Series B-2 (Associate) members, Series B-3 (GIM) members, Series B-4 (IDEM) members and Series B-5 (COM) members.

Class B members of CBOT do not possess the right to receive any dividends or distributions, including the proceeds from liquidation, from CBOT. Series B-1 and B-2 members have the right to vote on amendments to certain provisions of the certificate of incorporation of CBOT, including the number of authorized memberships; the relative voting rights of the Series B-1 and B-2 members; the trading rights, voting rights and core rights of Class B members and certain other covenants; and the commitment to maintain open outcry markets for so long as they meet certain liquidity thresholds.

Additionally, during the five-year period following the CBOT merger, we are required to provide the CBOT directors, as defined in the bylaws of CME Group, with five business days’ advance notice of any change to CBOT’s rules and regulations. If a majority of the CBOT directors determine in their sole discretion that the proposed change will materially impair the business of CBOT or the business opportunities of the holders of the Class B memberships of CBOT, such change will be submitted to a committee of the board of directors of CBOT comprised of three CBOT directors and two CME directors as defined in the bylaws.

NYMEX Memberships

In connection with the NYMEX Holdings merger, we made certain commitments to the NYMEX Class A members to maintain a trading floor in New York City as long as certain profitability and revenue thresholds are met, to limit our rights to relocate open outcry trading to Chicago for NYMEX products, which are no longer available for trading on the NYMEX floor, and to maintain fee differentials for NYMEX Class A members for as long as we maintain differentials for our CME and/or CBOT members. Substantially all other rights, including the revenue sharing rights contained in Section 311(G) of the previous bylaws of NYMEX, were eliminated in connection with the transaction. NYMEX Class A members do not have the right to receive dividends or distributions from NYMEX.

COMEX Memberships

Membership in COMEX entitles an individual or firm to trading rights, trading fees, access to open outcry trading and other benefits of membership. There are also COMEX Option memberships which exist on COMEX. The COMEX Transaction Agreement, executed in November 2006, provides COMEX Division members with certain trading right protections as well as a commitment to provide a trading facility in New York City for as long as open outcry trading exists on the COMEX Division and for a five-year period following the expiration of the COMEX Transaction Agreement. COMEX Division members maintain certain petition rights as it relates to proposed amendments to certain COMEX by-laws and rules.

Subsidiaries

Substantially all of our business operations are conducted through our exchange subsidiaries: CME, CBOT, and NYMEX. The following is a summary of the activities of our other operating subsidiaries:

Credit Market Analysis. In March 2008, we acquired CMA and its subsidiaries. CMA is a leading provider of credit derivatives market data designed to enhance the performance of over-the-counter credit market professionals. CMA’s real-time pricing services (CMA QuoteVision) and data (CMA DataVision) are used by investment professionals in leading investment banks, hedge funds and asset managers worldwide. CMA entities accounted for less than 1% of our consolidated total revenues in 2008.

C-B-T Corporation. C-B-T Corporation manages both our owned real estate and the general services relating to such real estate such as cleaning, power and telephone services in Chicago.

GFX Corporation. GFX Corporation (GFX) was established for the purpose of maintaining and creating liquidity in our electronically traded foreign exchange futures contracts. Experienced foreign exchange traders employed by GFX buy and sell our foreign exchange contracts using our CME Globex system. They limit risk from these transactions through offsetting transactions using forward contracts and spot foreign exchange transactions with approved counterparties in the interbank market. On occasion, GFX has also engaged in the trading of CME Eurodollars and equity index contracts. GFX accounted for less than 1% of our consolidated total revenues in 2008, 2007 and 2006.

Swapstream. In August 2006, we completed the acquisition of Swapstream and its subsidiaries. The Swapstream entities accounted for less than 1% of our consolidated total revenues in 2008, 2007 and 2006.

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Licensing Agreements

Standard & Poor’s

We have had a licensing arrangement with S&P since 1980. In September 2005, all of our previous licensing agreements with S&P were consolidated into one agreement that terminates on December 31, 2017. Under the terms of the agreement, as amended, S&P granted us a license to use certain S&P stock indexes and the related trade names, trademarks and service marks in connection with the creation, marketing, trading, clearing and promoting of futures contracts and/or options on futures contracts that are indexed to certain S&P stock indexes. The license is exclusive through December 31, 2016 and non-exclusive from that date through December 31, 2017 with some exceptions. Our license for the S&P 500 Index remains exclusive through December 31, 2016 so long as certain minimum average trading volume is met or other circumstances exist that relate to the reduction in trading volume. We may pay an additional fee to retain the exclusivity if the minimum average trading volume is not met. For certain products based on S&P stock indexes that we list after the effective date of the amended and restated agreement, we will have an exclusive license for two or three years depending upon the nature of the index, after which we will retain our exclusive rights so long as certain minimum average trading volumes are met. Under the agreement, we maintain our right of first refusal for new stock indexes developed by S&P during the term of the agreement. In the event we fail to launch a product based on a new index within one year, subject to certain considerations for regulatory delays, S&P may elect to terminate the license for such new index or terminate the exclusivity of the license. In exchange for the license, we pay S&P a per trade fee. If S&P discontinues compilation and publication of any license or index, we may license, on a non-exclusive and royalty-free basis, the information regarding the list of companies, shares outstanding and divisors for that index or terminate the obligations regarding the index. The licenses become non-exclusive in the event we list certain competitive products.

NASDAQ

We have had a licensing arrangement with NASDAQ OMX since 1996 to license the NASDAQ-100 Index and related trade names, trademarks and service marks. The license was extended and expanded in October 2003 to license us both the NASDAQ-100 Index and the NASDAQ Composite Index and in April 2005 to add the NASDAQ Biotechnology Index for trading futures and options on futures contracts that are based on the indexes. In 2008, we agreed to extend the exclusive license agreement through 2019. With respect to the NASDAQ Composite Index, NASDAQ OMX may terminate the exclusivity or the entire license if trading volume fails to meet certain performance criteria on each anniversary of the agreement in October. During the applicable period of exclusivity, NASDAQ OMX will not grant a license to use the indexes in connection with the trading, marketing and promotion of futures contracts and options on those futures contracts that are based on an index that is exclusive to us. We pay per trade fees to NASDAQ OMX under the license. We have a right of first refusal for new indexes that are licensed for futures products where the index is substantially equivalent to an index licensed to us or is a subset of an index licensed to us.

Dow Jones License Agreement

We have a licensing agreement with Dow Jones to license certain Dow Jones stock indexes and the related trade names, trademarks and service marks in connection with the creation, marketing, trading, clearing and promoting of futures contracts and/or options on futures contracts that are based upon such Dow Jones stock indexes. Our license of the Dow Jones Composite Index, the Dow Jones Industrial Average Index, the Dow Jones Transportation Average Index and the Dow Jones Utility Average Index is exclusive, and non-exclusive for the Dow Jones U.S. Real Estate Index. We also have a right of first refusal for new indexes developed by Dow Jones prior to December 31, 2010 and the right to sublicense our exclusive license rights under the agreement to any other exchange for the trading of futures contracts and options on futures contracts. The initial term of the agreement is from January 1, 2008 through December 31, 2014. Following the initial term, the agreement shall automatically renew for a first renewal term of five years and then for successive annual renewal terms thereafter unless terminated by either party in writing prior to the end of the applicable term. In exchange for the license, we pay a per trade fee with a guaranteed annual minimum license fee and an upfront fee paid in January 2008.

The Frank Russell Company

We previously maintained a licensing arrangement with the Frank Russell Company to license the Russell 2000 Index and related trade names, trademarks and service marks. In June 2007, Russell provided notice to us that it did not intend to renew the agreement. In response to customer demands and to ensure an orderly transfer of liquidity, we listed our Russell contracts through the September 2008 expiration date.

Intellectual Property

We regard substantial elements of our brand name, marketing elements and logos, products, market data, software and technology as proprietary. We attempt to protect these elements by relying on trademark, service mark, copyright and trade secret laws, restrictions on disclosure and other methods. For example, with respect to trademarks, we have registered marks in numerous countries all over the world. We have filed numerous patent applications in the United States and internationally to protect our technology. In December, 2006, the United States Patent and Trademark Office granted CME its first patent. We now have 15 granted U.S. patents.

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Our rights to stock indexes for our futures products principally derive from license agreements that we have obtained from S&P, NASDAQ OMX and Dow Jones and others. For a more detailed discussion of these licenses, see the section of this Annual Report on Form 10-K entitled “Item 1. Business—Licensing Agreements.” Various other CME Group products rely on license agreements from third parties. We cannot assure you that competitors will not attempt to enter these markets or create similar products. Nor can we assure you that we will be able to renew or maintain those license agreements beyond their current terms.

We regularly review our intellectual property to identify property that should be protected, the extent of current protection for that property and the availability of additional protection. We believe our various trademarks and service marks have been registered or applied for where needed. We also seek to protect our software and databases as trade secrets and under copyright law. We have copyright registrations for certain of our software, user manuals, and databases. Legal developments allowing patent protection for methods of doing business hold the possibility of additional protection, which we continue to pursue.

Patents of third parties may have an important bearing on our ability to offer certain of our products and services. It is possible that, from time to time, we may face claims of infringement that could interfere with our ability to use technology or other intellectual property that is material to our business.

Employees

As of December 31, 2008, we had approximately 2,300 employees.

We consider relations with our employees to be good. We have never experienced a work stoppage. As of December 31, 2008, approximately 40 of our employees were represented by one of the following unions:

In January 2009, we outsourced the group of employees in the Services Employees International Union along with their associated responsibilities, representing approximately 30 employees.

Our Executive Officers

The following are our executive officers, including a description of their business experience over the last five years. Ages are as of February 1, 2009.

Terrence A. Duffy, 50

Mr. Duffy has served as our Executive Chairman since October 2006, as our Chairman from 2002 until 2006 and has been a member of our board of directors since 1995. He also has served as President of TDA Trading, Inc. since 1981.

Craig S. Donohue, 47

Mr. Donohue has served as Chief Executive Officer and a member of our board of directors since January 2004. Mr. Donohue joined us in 1995 and since then has held various positions of increasing responsibility within the organization including Managing Director and Chief Administrative Officer, Managing Director, Business Development and Corporate/Legal Affairs of CME and Senior Vice President and General Counsel. Mr. Donohue also serves as our representative on the board of directors of BM&F.

Kathleen M. Cronin, 45

Ms. Cronin has served as our Managing Director, General Counsel and Corporate Secretary since August 2003. Previously she served as Corporate Secretary and Acting General Counsel from November 2002 through August 2003. Prior to joining us, Ms. Cronin was a corporate attorney at Skadden, Arps, Slate, Meagher & Flom from September 1989 through July 1995 and from April 1997 through November 2002.

Bryan T. Durkin, 48

Mr. Durkin has served as our Managing Director and Chief Operating Officer since July 2007. Mr. Durkin joined us in connection with the CBOT merger and he previously held a variety of leadership roles with CBOT from 1982 to 2007, most recently as Executive Vice President and Chief Operating Officer.

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Phupinder Gill, 48

Mr. Gill has served as President of CME Group since July 2007. Previously he served as President and Chief Operating Officer since January 2004. Mr. Gill joined us in 1988 and has held various positions of increasing responsibility within the organization, including Managing Director and President of CME Clearing and GFX.

Barry C. Goldblatt, 49

Mr. Goldblatt has served as Managing Director, Commodities, Energy and Metals since February 23, 2009. Prior to joining the company, Mr. Goldblatt most recently served as Managing Director, Commodities, Derivative Sales and Global Securities for Merrill Lynch from 2004 to February 2009. He also served as Head of Derivative Sales and Structured Risk for Koch Energy Trading from 1998 to 2004 and previously held a variety of senior positions at a number of financial services organizations.

Jill Harley, 46

Ms. Harley has served as Managing Director and Chief Accounting Officer since March 2008. Ms. Harley served as the Chief Accounting Officer of CBOT from 2004 to 2007 and as its Vice President and Treasurer from 1998 to 2004 and as Controller from 1995 to 1998. Ms. Harley is a registered certified public accountant.

Julie Holzrichter, 41

Ms. Holzrichter has served as Managing Director, Global Operations of CME Group since August 2007. Ms. Holzrichter rejoined us in July 2006 as our Managing Director, CME Globex Services and Technology Integration. Ms. Holzrichter previously held positions of increasing responsibility in our organization from 1986 to 2003 in trading operations.

Kevin Kometer, 44

Mr. Kometer has served as Managing Director and Chief Information Officer since July 2008. He previously served as Managing Director and Deputy Chief Information Officer from 2007 to July 2008. Since joining the company most recently in 1998, he has held senior leadership positions in the Technology Division, including Managing Director, Trading Execution Systems and Director, Advanced Technology. Mr. Kometer was also with the company from 1994 to 1996.

James E. Parisi, 44

Mr. Parisi has served as Managing Director and Chief Financial Officer since November 2004. Mr. Parisi joined us in 1988 and has held positions of increasing responsibility within the organization, including Managing Director & Treasurer and Director, Planning & Finance.

Hilda Harris Piell, 41

Ms. Piell has served as Managing Director and Chief Human Resources Officer since August 2007. Previously she served as Managing Director and Senior Associate General Counsel, as Director and Associate General Counsel and as Associate Director and Assistant General Counsel since joining us in 2000.

Richard H. Redding, 47

Mr. Redding has served as Managing Director, Products & Services since March 2004. He had held this position on an interim basis since January 2004 and, prior to that appointment, served as head of the company’s equity product line for 10 years. Mr. Redding joined us in 1988 and, since then, had held positions of increasing responsibility in our market surveillance and product marketing functions.

Kimberly S. Taylor, 47

Ms. Taylor has served as Managing Director and President of the Clearing House Division since January 2004 and as Managing Director, Risk Management in the Clearing House Division, from 1998 to 2003. Ms. Taylor has held a variety of positions in the Clearing House, including Vice President and Senior Director. She joined us in 1989.

Kendal Vroman, 37

Mr. Vroman has served as Managing Director and Chief Corporate Development Officer since March 2008. Mr. Vroman joined us in 2001 and, since then, held positions of increasing responsibility, including most recently as Managing Director, Corporate Development and Managing Director, Information and Technology Services.

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Available Information

Our Web site is www.cmegroup.com . Information made available on our Web site does not constitute part of this document. We make available on our Web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. Our corporate governance materials, including our Corporate Governance Principles, Director Conflict of Interest Policy, Board of Directors Code of Ethics, Categorical Independence Standards, Employee Code of Conduct and the charters for all the standing committees of our board, may also be found on our Web site. Copies of these materials are also available to shareholders free of charge upon written request to Shareholder Relations and Membership Services, Attention Ms. Beth Hausoul, CME Group Inc., 20 South Wacker Drive, Chicago, Illinois 60606.