Older members of Chicago’s financial exchange community recall when their peers in New York looked down on them as unsophisticated traders in agricultural products such as pork bellies, cattle, corn and wheat.

If any such sentiment still lingered in Wall Street, it will have evaporated last week after the CME Group struck a deal to buy Nymex, the New York energy exchange, for $9.4bn.

The deal will make the CME – formed last year from the Chicago Mercantile Exchange’s $11bn purchase of the Chicago Board of Trade – the largest financial exchange in the world, controlling 98 per cent of US listed futures.

Although the CME/CBoT deal was seen as a defensive move to ward off potential predators, it also bolstered the city’s standing, turning Chicago into a serious global player. The Nymex move has underlined that and cemented Chicago’s position as a global centre of risk-taking and risk-management.

This reputation rests on its range of derivatives exchanges, with CME at the top of a scale that also includes the Chicago Board Options Exchange, the US’s biggest options exchange, and smaller but more unique entities such as the Chicago Climate Exchange, the US’s first greenhouse-gas emissions exchange.

The city also hosts the headquarters of large insurance companies such as Aon State Farm and Allstate.

In recent months, while Wall Street has writhed in the agony of turbulent equity markets and an ongoing credit crunch, Chicago’s exchanges have been booming, as investors look to hedge their investments or bet on further volatility. That has augmented a trend of fast growth in options and futures trading, whose volumes are expanding by about 25 per cent a year.

While the city’s financial star is on the rise, some locals say the traditional caricature was somewhat valid. “Historically, Chicago has not been very plugged into the economy of the wider world,” says Donald Jacobs, dean emeritus of the Kellogg School of Management at Northwestern University, Chicago. “New York looked to Europe, San Francisco looked to Asia, while here in Chicago – being in the middle of the country – we were mainly looking at cornfields.”

But that very perspective gave the city its focus. Richard Sandor, chairman and chief executive of the Chicago Climate Exchange, says Chicago’s success at establishing itself as the centre of risk management grew from the inherently risky grain-trading business, with its dependence on Midwest weather conditions.

With the invention in the 1970s of financial futures – of which Mr Sandor was one of the principal architects – Chicago grew beyond its agricultural roots. Trading in products such as interest-rate futures and volatility options now dwarfs the volumes in agricultural derivatives.

“New York became the home of investment capital, San Francisco the home of venture capital, and Chicago the home of speculative capital,” Mr Sandor says.

While Chicago remains very much America’s second financial city, the CME-Nymex deal has reinvigorated a rivalry with New York. “It drove [former NYSE chief executive] Dick Grasso up the wall that Chicago was so successful in derivatives and he was never able to move into that world,” says a former CME board member. “As for Nymex, whatever pride those guys in New York have, they’re going to have to swallow. They’re becoming part of something else that they’re really tangential to.”

Chicago’s ascent has also sparked a battle among media outlets to increase their business coverage from the city. CNBC, Bloomberg, CNN, Fox Business Network and other broadcasters are setting up operations in a new media centre on the CME’s trading floor. Business Week recently launched BW Chicago, its first monthly magazine aimed at a specific city.

“Because of its markets, Chicago has some of the leading indicators that we want to focus on,” says Brian Jones, Fox Business’s senior vice-president for news.

The fact that the CME secured the CBOT in the face of a rival bid from the Atlanta-based Intercontinental Exchange helped retain the city’s role as an international centre for derivatives trading. “Had we not come together, there was no guarantee that either one of these institutions would have remained in Chicago,” says Terry Duffy, CME chairman.

Many in the industry say the CME’s ability to gain a foothold in the backyard of exchange groups such as NYSE Euronext and Nasdaq OMX resulted from its early embrace of trading technology and the development of new financial products.

“We’re not just this little Chicago exchange any more,” Mr Duffy says. “We’ve done a lot of work as far as innovation goes, otherwise we’d still be trading butter and eggs.”

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