Stepping into Leo Melamed’s office at the CME Group building is like stepping into an incredible museum. Walls are covered with futures-related art, book-cases are filled with photos, gifts from political and business leaders around the globe and of course books, most notably those the man himself has written. He relishes telling stories about the photos...he has one of him with every U.S. president since Gerald Ford. The photos tell the story of the Chicago Mercantile Exchange’s (CME’s) growth through the years, centering of course on Melamed, who was instrumental not only in orchestrating the launch of financial contracts, but in guiding the Exchange through the rough and tumble world of politics, Wall Street and global turmoil the past several decades. (See “Melamed on Milton and the impact of currency futures,” by Daniel P. Collins and Ginger Szala.)
One of the more fascinating pieces in Melamed’s office is the original rule book for the Exchange. He chuckles showing it to us, describing how it was handed down to him by the previous chairman. Upon opening it, we see that notes are clipped to pages, hand-written notations are in margins and looseleaf pages hang out. That was the way it was when he took over as CME chairman 43 years ago — literally one rule book — and changes were typed up and taped to pages. And at that time, the Exchange was in disrepair: Meats were the only products still trading as it had gotten into trouble with the onion contract, garnering it the nickname, the “Whore house of LaSalle Street.”
It was 1969 and the young lawyer, then in his early 30s, was trying to revamp the Exchange. Seeing the need for modernization, he held a constitutional convention and from that came a new rule book in 1971. Then he wanted to diversify the products. Melamed says they tried everything: Turkeys, shrimp, potatoes...always agriculture, but nothing worked. They were getting desperate.
Around that time there was talk about abolishing the Bretton Woods accord and allowing floating currency rates. It was a new world and Melamed thought, “Why not try currencies?”
As the Exchange’s nickname would indicate, Melamed doubted he could pursue this route without a credible voice backing the plan. He decided Milton Friedman, renowned economist at the University of Chicago, would be a great choice. He approached Friedman, who thought it was a terrific idea and encouraged Melamed to pursue currency futures products. After some haggling, Melamed got Friedman to write a paper on it, which Melamed used to push his idea on U.S. and global bankers, politicians and business leaders.
Melamed also set up a financial exchange within the CME, the International Monetary Market, which like Futures magazine, marks its 40th anniversary this year.
As they say, the rest is history. Although there were trying times — for example, when the Mexican peso was devalued (which he says they saw coming and raised margins ahead of time, proving that the clearinghouse system worked) — the CME was able to leverage its innovative spirit into becoming the largest futures exchange in the world.
Throughout that time, Melamed has been a tireless advocate of the global derivatives industry, always seeing new ideas before their time. Globex was such a product, and helped start the electronic trading revolution that sent volumes into the stratosphere. He also has been a fighter, defending the industry at every turn, and instrumental at putting in place safeguards to counteract criticism.
But perhaps the most keen attribute is Melamed’s innate vision and understanding of how to execute a successful plan. Back in the early 1970s, an exchange at a crossroads may not have succeeded without Melamed, who not only had an idea, but understood what had to happen to get it launched. In a multi-trillion dollar business in which many traders don’t think beyond the next day’s game plan, it’s clear Melamed may be one of the industry’s greatest assets.