1. Exchange Market Dynamics – Factors for Success Bob Hutchings Senior Product Manager Chicago Board of Trade First Seoul International Derivatives Securities Conference August 28, 2003

2. Agenda Elements of Successful Exchanges Trading Overview Products Exchange Initiatives Question and Answer

3. Elements of Successful Exchanges

4. “The Soviet Union Union would have collapsed years earlier if it did not have the West's prices on which to make economic decisions.” -Mikhail Gorbachev

5. “The power of the silicon chip will double every 18 months.” -Moore's Law

6. Does IT amplify brain power or does “IT” stand for “Insignificant Toys”

7. “There is one important caveat to the notion that we we live in a new economy, and that is human psychology... which appears appears essentially immutable.” -Alan Greenspan

8. “The medium is the message” -Marshall McCluen

9. Low-cost enforcement of forward contracts Brokers dealing as principals “Ringing-out” Settlement by the payment of monetary differences Deposits of margin money Standardized contracts Impartial grading Speedy arbitration

10. “Information Rules”: "Technology changes, economic laws do not."

11. Don’t Burn the Textbooks

12. Trading Overview Trading volumes up, what’s the problem?

13. “The willingness to take risk is essential to the growth of a free market economy. If all savers and their financial intermediaries invest in only risk-free assets, the potential for business growth would never be realized.” -Alan Greenspan

14. “...futures and option markets – are zero sum games...” -Dr. Thomas Schneeweis

15. So, who’s at fault?

16. Pit Trading and Electronic Venues for Market Making

17. Risk is ferocious, inescapable, but manageable

18. Products

19. “Ironically, a well-functioning futures contract will represent an imperfect transaction for both parties, being general enough to apply a broad range of buyers and sellers." -(Petzel, 1989, p.6)

20. "Markets tend to happen and evolve over time in very standard ways." -Dr. Richard Sandor

21. Access Products

22. New Products?

23. Exchange Initiatives

24. CBOT ® Innovations

25. Was original founder and developer of the Chicago Board of Options Exchange in 1973

26. First exchange to offer interest rate futures contracts-listed GNMA futures in 1975

27. Established evening open auction trading session in 1980's to meet the demand from Asian Markets

28. In 1990's, first to offer financial products side-by-side in the trading pit and screen

29. In conjunction with the CME and CBOE established OneChicago

30. LIFFE CONNECT ®

31. Common Clearing

32. New Tools

33. CBOT Advantage

34. Market Profile

35. Liquidity Data Bank

36. OFI (Order Flow Imbalance)

37. Question & Answer

38. Bob Hutchings Senior Product Manager Chicago Board of Trade (312) 435-3694 rhutchings@cbot.com