February 28, 2000

Les Echos - French Business Daily

The two architects of financial futures contracts

Leo Melamed (CME) and Richard Sandor (CBOT)

As the beginning of the Seventies witnessed the emergence of the period of floating exchange rates, an American, Leo Melamed, will cause a significant revolution on the futures markets. Today Chairmam Emeritus of the Chicago Mercantile Exchange (CME), he is considered as one of the founders of financial futures contracts.

In 1972, as Chairman of the CME, he made the decision to create the first futures contracts on foreign currencies, thanks to the launching of International Monetary Market (IMM), the first market in financial futures instruments in the world. During the quarter century when he lead the destiny of the CME, the Chicago market emerged from a secondary status in the market for domestic agricultural produts to that a market in long financial futures instruments that ranks among the most important in the world.

During this period, from 1967 to 1991, these long term financial instruments knew a growth without precedent and became essential to financial risk management. The IMM was recognized as a world model, which was copied in many markets created in other countries. In 1984, Leo Melamed was among the first to preach a development of the international links between the CME and thefutures market of Singapore. Thanks to this established link, a product - the futures contract on 3 month U.S. dollar - can be traded at the same time in Singapore and Chicago. In 1987, Leo Melamed extended this concept to originate Globex, the first world electronic network market developed in collaboration with the British news agency Reuters.

How did Richard Sandor, the "guy from Brooklyn", got interested in the futures markets and, as Leo Melamed, his counterpart of the CME, created the first interest rate futures contracts?

Before 1966, Richard Sandor taught at the University of Minnesota, where he earned his doctorate. He was already interested in the commodity markets as a speculator, while an assistant professor of applied economics at the University of California, Berkeley. He also worked as a Director of the California Commodity Advisory and Research Project, observing the effects, in California of the banking credit "squeeze" after 1966, which convinced him that one day the futures markets on interest rates would exist.

With his faith and his enthusiasm for these markets, Richard Sandor got to know various professionals of the futures markets, and more particularly those of the Chicago Board of Trade (CBOT). In particular Warren Lebeck, vice-president and secretary of the CBOT, attended one of his conferences at Berkeley in 1972. After hearing the remarks by the "professor", Warren Lebeck did not cease to work to make Sandor come to the CBOT. Which was made easier when the office of Director of the Research of the CBOT was made vacant with Joe Sullivan resignation. The energy deployed by Richard Sandor will lead, in 1975, to the creation of the first interest rate futures contract based on mortgage emitted by the Government National Mortgage Association, the famous GNMA' S. But the true take-off of interest rate futures will come a little later, in August 1977, with the launching of the "T-Bond" contract, based on the long-term obligations of the U.S. Treasury. In recognition of his work, the CBOT and the city of Chicago presented Richard Sandor with the title of " father financial futures".

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