Posted on Tuesday 9 January 2018 by Ulster Business

A big exchange of ideas with cme group

Bryan Durkin chats with Ulster Business editor David Elliott at CME's Great Victoria Street, Belfast, offices

 

There aren’t many companies in the world, never mind in Northern Ireland, which have need of the term “quadrillion” when measuring their business.

But CME Group, the Chicago-headquartered financial services firm which has an office of 220 people on Belfast’s Great Victoria Street, is one of them, valuing the three billion contracts the global firm handles each year at $1 quadrillion.

If, like Ulster Business, you weren’t immediately aware of how much a quadrillion is, a quick bit of research reveals it is $1,000,000,000,000,000 (at least in the US system), a dollar figure which works out at £753,500,000,000,000, or, to put it in layman’s terms, an awful lot of money.

It has responsibility for such a large value by providing a market place for the trading of derivatives, allowing businesses to hedge risk or assume risk on a myriad of products ranging from lean hogs to interest rate swaps, crude oil to Hungarian Forints and everything in between.

In a practical sense that might mean a wheat farmer locking in the price of a crop that he’s just planted and won’t be harvested for six months or a UK manufacturer which knows it will need to buy raw material in euros in the next six month and doesn’t want to be left exposed to the fluctuations of a volatile foreign exchange market when it goes to pay for it.

On the other side of the coin will be pension funds, investment banks and others with an appetite for risk and which make their money from trying to predict where markets are headed.

It takes the two parties to make the market work and a third in the shape of CME Group to facilitate the trade.

The organisation – an acronym of Chicago Mercantile Exchange – has grown exponentially over the last few years, both organically and acquisitively by buying up rivals such as the Chicago Board of Trade, the New York Mercantile Exchange and Comex and is now considered the world’s largest futures and options exchange.

Although a major name in the financial services world, it wasn’t widely recognised when it first set up camp in Belfast back in 2012 with just 23 people but, having grown substantially since then, it is also making a mark on these shores.

There are now 220 people working in the CME Group Belfast office, the vast majority of which are focused on technology roles such as software architecture and cybersecurity.

But why come to Belfast in the first place, a city far from any of the major financial hubs?

“We are very much viewed as innovators in technology solutions and our job is to keep ahead of the curve,” CME Group President Bryan Durkin told Ulster Business on a visit to the city. “We wanted to expand our technology footprint in the UK and found that the skills we were looking for were here.

“Belfast was very welcoming, extremely excited about the prospect of having us here and did everything they could to help us make the decision to come.

“The fact other financial institutions were building up a strong presence here was exciting for us because we knew this would be a smart area for us to go in terms of finding the talent and skilled resources we would need to help build out value proposition.”

It also helped that Invest NI and the then Department of Employment and Learning offered up the guts of £1m to the company as an incentive between them at the time.

Encouragingly the business seems to have settled in well, as the expansion over the last few years has shown, and headcount is well on its way to reaching 250 by the middle of 2018, Mr Durkin, who was deeply involved in the decision to set up a base in Belfast, said.

That expansion suggests the promise of talent hasn’t disappointed?

“I couldn’t be more impressed with the skilled personnel we have in this office,” he said. “When I think about the breadth of the applications and programs which the team here is working on for our enterprise it is amazing.

“We’re very impressed with the pool of talent we have been able to bring into our Belfast organisation.”

To CME Group’s credit, it hasn’t sat back waiting for the talent to come to it but has recently announced two-year funding for both Queen’s and Ulster University to the tune of around £145,000 each to help in the development of financial engineering qualifications, a move which suggests it is investing in a future here. The funding is provided by its philanthropic arm, the CME Group Foundation.

The funding will allow Queen’s to develop courses for over 140 GCSE computing teachers to properly teach and inspire pupils to study computing and coding while Ulster University will fund postgraduate and doctorate scholarships as part of its financial engineering project.

While the focus has been very much on technology, CME Group is also showing signs of broadening the remit of its Belfast office in response to the availability of talent here.

“We are largely a technology centre but have expanded into other areas with a clearing operations team and a small team of account, finance and human resources,” Mr Durkin said.

That move is similar to investment bank Citi which started out as a small technology base in Belfast and now employs over 2,500 people including a large legal department – which fed on the wealth of legal graduates being produced by local universities – and a growing middle office division which matches trades from its investment banking division.

So could CME Group follow that path in the future?

“I can’t say I see that in terms of the other disciplines, but who’s to say,” Mr Durkin said. “I can say that, as you point out, five years ago this was a technology arm and it has expanded beyond that.

“We’ll do what makes the most sense for our organisation.”

When it comes to Brexit, one of the biggest issues hanging over businesses of all sizes in the UK, he said the importance of the CME Group’s function in the global economy has been ramped up.

“It (Brexit) is not going to impact our ability to function as an international exchange as we continue  to access the client base throughout the globe. Our focus is to make sure we’re providing deep liquidity and tight efficient markets around the clock so that when things start happening, whether it’s Brexit or the US elections, the market is there to absorb the uncertainty and manage their risk.”

As a veteran of 35 years in CME Group, Mr Durkin has helped steer the company through many other periods of major change in the industry, such as the move from floor trading – where traders bought and sold futures contracts in front of each other in a physical building – to electronic trading where all contracts are exchanged on a computer system.

For many “open outcry” floor traders who had spent their careers doing business in front of each other, the process of retraining and learning to trade electronically was, at the time, difficult but the move has borne fruit, according to Mr Durkin.

In its heyday, CME open outcry trading was notching up a maximum of one million contracts daily (both the Chicago and New York pits were closed in 2015 when floor trade dropped to 1% of daily futures volume) while nowadays the exchange trades an average of 16m.

“It was necessary for us to develop capabilities and technology so we could compete on a global basis and that required us to go from a floor-based environment to introducing technologies. We had to get people to accept and embrace the fact that if they weren’t able to adapt their trading skills, their opportunities would be extremely limited.”

The lessons learnt from managing such transformation could be of use to businesses in the current environment who are coping with the introduction of technologies such as artificial intelligence, robotics and virtual and augmented reality.

How do you introduce such new technologies to employees used to more traditional methods?

“We did a lot in terms of education,” Mr Durkin said. “And we were very transparent about what was on the horizon so that we could help those who were most affected and appreciate what was needed to continue to grow the opportunities for the institution and further build the value proposition of being a global risk management solution for the world.”

“Change is hard but people got it. I’m very proud of that.”

Those lessons will no doubt come in handy, as will the CME Group’s contribution to the Northern Ireland economy.

Aside from the employment it brings and the work it does with the local universities, its presence here is proof we have what it takes to satiate the demands of a global leader.  ■

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