Who Were We?

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Success of the International Monetary Market (IMM) of the CME defied all the odds.

"It's ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," proclaimed a prominent New York banker on the eve of the launch of the IMM.

"The New Currency Market is strictly for crapshooters," echoed Business Week. "If you fancy yourself an international money speculator but lack the resources...your day has come."

And in 1976, at the opening of the IMM's interest rate market, the respected Economist mocked our efforts with the following nasty missile:

Like Linda Lovelace, the girl with the deep throat, the International Monetary Market (IMM) of the Chicago Mercantile Exchange tries to make money by being more outrages than its rivals. Now that its currency futures market is well established-it was opened in 1972 by women in fancy dress-the IMM has this month opened a trading pit in the United States treasury bill futures. Bidding for the government paper takes place on the same floor as for pork bellies, live cattle, and three-month eggs.

A decade later, at the opening of our stock index futures market, Barron's seemingly joined the nay-sayers with the following derisive comment: "Like their lightning-paced video game counterparts, stock index futures offer instant gratification or instant annihilation depending on the accuracy of your impulses and quickness of your reflexes."

Of course, the media and other detractors missed the point entirely. The IMM was not out to beat anybody, nor were we trying to resurrect or reinvent something. This was a brand new invention-financial futures. In 1972, it represented a bold experiment to create new markets to respond to an era in transition, eventually known as globalization. We were attempting to draw a road map for the financial geography that lay ahead, trying to provide business and finance the same risk transfer mechanisms that their agricultural counterparts had been successfully using for more than 100 years. A mechanism they would soon dearly need.

Revenge is sweet! In 1986, Professor Merton Miller, the 1990 Nobel Laureate in Economics, ranked the invention of financial futures as "the most significant financial innovation of the last twenty years." And in March of 1999, Alan Greenspan had this to say about the development and expansion of financial derivatives in general:

By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives....These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it.....a process that has undoubtedly improved national productively growth and standards of living.

So how did the IMM defy the odds? How did the IMM succeed in introducing the concept of financial futures which today has been embraced and copied in every financial center the world over? In 1982, at the gala celebration of the IMM's tenth anniversary-at which the 1976 Nobel Laureate in Economics, Milton Friedman was Guest of Honor-Leo Melamed attempted to answer this question. The IMM's success, he suggested, can be better be explained by who we were rather than by "how we did it:"

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Who Were We?

We were a bunch of guys who were hungry
We were traders to whom it not matter
Whether it was eggs or gold, bellies or
The British Pound, turkeys or T-bills.

We were babes in the woods, innocents,
In a world we did not understand,
Too dumb to be scared.

We were audacious, brazen, raucous pioneers,
Too unworldly to know we could not win.

That the odds against us were too high;
That the banks would never trust us;
That the government would never let us;
That Chicago was the wrong place.

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The traders became our army. They were our secret weapon.
Most of the world underestimated the power they represented.

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