Originally published in the "Agents of Change" 2007 Special Issue
Leo Melamed has been a part of the entire modern futures experience. He was a member of the Chicago Mercantile Exchange (CME) when their biggest contract was egg futures and has supervised or been directly responsible for all of its major innovations from the International Monetary Market (IMM) to the emergence of Globex and he is still looking to the future and by the way still trading. Anyone who sits down to have a discussion with Leo knows that they won’t have his complete attention because a part of him will always be focused on the markets he created. Like a proud parent, Melamed can’t stand to be separated from his progeny too long, so there is always a position to follow and trade to be made.
On the walls of his office hangs a 20-year-old picture of a special issue of Futures in which he was profiled among other movers and shakers in the industry. At the time his place in history was already set as one of the modern futures industry’s founding fathers though the CME was still second banana in Chicago at the time, no where near the global behemoth it is today and did not fully reap the benefits that his innovations set in motion 17 years earlier.
Development of the IMM
It is much easier to understand the impact of the IMM today with hindsight than when it launched in 1972. “There was a huge community that remained steadfast in its belief that futures markets could not succeed outside of the general framework of agriculture and stored commodities,” Melamed says.
After all the world of futures was restricted to commodities at the time and the CME was not even a major player. “The CBOT was the shining example of success. It was the number one exchanges forever,” Melamed says.
He says the idea of trading futures on financial instruments was so wild that there was a great deal of hostility towards it along with those who simply saw it as folly. “Not just negativism — which is expected because the status quo is always fighting for the status quo — but there was actually hostility.”
Of course great innovations are often met with such a response and Melamed considers the creation of the IMM as the most significant event in the futures industry. “It all flowed from there. It breathed life into [the industry], gave [it] an entirely new dimension and vista.”
In retrospect he is amazed at the opposition it faced. “You mean there were people against it? Everyone didn’t recognize how brilliant this [idea] was? You mean there were people that couldn’t recognize the potential of markets in financial futures? The answer of course is yes, yes and yes. Now it has become so obvious, so natural.”
Melamed himself was not without doubts but he had future Nobel laureate in Economics Milton Friedman on his team, which was not the normal company for futures traders at the time. “The fact that he embraced my idea and he told me to do it, gave me confidence on currencies,” Melamed says.
But Melamed’s idea was not simply to create currency futures — which in fact already had been tried on a smaller scale — they were simply the best option at the time, he insists the idea was broader from the start.
“When we created the IMM, if you read the charter, it says an exchange organized to list for trading instruments of finance,” Melamed says.