More than a decade ago, CME Group and NASDAQ OMX joined forces to launch the E-mini NASDAQ-100 futures contract. Since then, the relationship between the two industry leaders has strengthened and grown to no surprise, given the many similarities between the two companies.

Business is often about two things, building your core franchise and looking for new markets.

In 1994, NASDAQ's core business as a stock market surpassed the New York Stock Exchange in yearly share volume, making it one of the world's top equities markets. But as at any successful company, executives turned their attention to the next opportunity. The goal was to create more NASDAQ-branded financial products to build its equity index futures and options business.

This turned out to be a good idea because in 1996, NASDAQ found a partner in CME. CME launched futures and options on futures based on the NASDAQ-100 Index, which is made up of large non-financial U.S. and international stocks. That partnership blossomed further in 1999, when CME was looking for new electronic index products for the CME Globex trading platform. Given the success of E-mini S&P 500 futures, why not enable individuals and smaller firms to trade a different segment of the equity market using an E-mini NASDAQ-based futures product?

Customers responded to the smaller-size contract in droves. More than 636 million E-mini NASDAQ-100 futures contracts have traded since their introduction in June 1999, making this product one of the world's most successful equity index futures contracts. Today, more than 330,000 E-mini NASDAQ-100 futures contracts, with a notional value of more than $9 billion, trade on average each day. A product family extension, the E-mini NASDAQ-100 options contract, has achieved volume of more than 1.9 million contracts since its launch in 2004.

Secrets of success
John Jacobs knows about successful financial products. Now executive vice president of the NASDAQ OMX Global Index Group and the exchange's chief marketing officer, he earlier directed the launch of one of the most successful financial products in stock market history - the QQQ, otherwise known as the NASDAQ-100 Index Tracking Stock. In Jacobs' view, the key requirement for the E-mini NASDAQ-100 futures contract was to identify and meet customer needs.

"NASDAQ and CME Group both strongly value customer input as a part of product development," Jacobs says. "We test our ideas with customers rather than guessing what they want. In this case, we found that the E-mini NASDAQ-100 futures would be the perfect size for people to use to hedge their market exposure more actively, since they are one-fifth the size of the NASDAQ-100 futures. In addition, electronic trading enables customers across the globe to trade the new contract. The marketplace loves these products for those two reasons."

It is not too much to say that no product in the past decade has done more to reshape the derivatives industry than the E-mini futures and options contracts, says Paul Zubulake, senior analyst with Aite Group.

"These were the contracts that enabled electronic trading to boom," Zubulake says. "E-minis opened the futures markets to smaller institutions and individuals. Electronic trading allowed market participants all over the world to gain quick liquidity by purchasing a futures contract rather than a basket of stocks. Incredibly, over this 10-year period we've gone from executing trades with phone calls to electronic self-execution and algorithmic trading. Without the benchmark E-mini contracts, this transition would have been much less rapid."

Beyond product innovation
"Looking back, it's not a surprise that NASDAQ OMX's relationship with CME Group has been a success," says Jacobs. "We're both fast-moving organizations that are willing to explore alternatives and innovate new products to meet evolving customer needs. We've both achieved success by investing to improve our electronic trading technology. And we were the first member-owned exchanges to become shareholder-owned, public companies."

The relationship between the two exchanges reached a new level when CME Group moved to a single listing of its common stock on NASDAQ in 2008, from dually listing in 2005.

"We made our listing decision after evaluating the trading of our stock and ability to leverage NASDAQ OMX's corporate services," says Jamie Parisi, CME Group managing director and chief financial officer. "However, the change also recognizes the value and importance of our relationship with NASDAQ OMX. Together, our exchanges have been able to provide a series of significant, innovative hedging and risk management tools that have created new value for the shareholders of both organizations."

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